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TMI Blog2019 (3) TMI 1764X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee. - ITA No.7478/Mum/2016 - - - Dated:- 15-3-2019 - Shri Shamim Yahya, AM And Shri Amarjit Singh, JM Appellant by : Shri R.C. Modi And Ms. Ketki Rajeshirke Respondent by : Nishant Samaiya ORDER Shamim Yahya, A. M.: This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-10, Mumbai ( ld.CIT(A) for short), dated 19.09.2016 and pertains to the assessment year (A.Y.) 2011-12. 2. The grounds of appeal read as under: 1. On the facts and in the circumstances of the case, the Hon ble CIT(A) erred in confirming allowance of depreciation by the Assessing Officer at ₹ 5,71,92,626/- as against claimed made by the appellate-company of ₹ 15,78,34,916/-. 2. The appellant craves leave to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of appeal. 3. Brief facts of the case are that assessee is a company engaged in the business of manufacturing of diamond and energy. The only issue is related to disallowance of depreciation the tune of ₹ 5,71,92,626/- by the Assessing Officer based upon his order of AY 2009-10 and confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2008 by taking the cost of assets at revalued price as done by the Government Approved Registered Valuer less depreciation calculated on the basis of WDV in the hands of the erstwhile firm and from the AY-2009-10, the depreciation was claimed by the assessee company on basis of WDV as ascertained (supra) in the AY 2008-09 on 31.3.2008. The assessee company claimed depreciation in assessment year 2008-09 from 1.9.2008 to 31.3.2008 fifth proviso to secr_ion32(l) of the Act which for the sake of convenience and better understanding extracted as under : '[Provided also that the aggregate deduction, in respect of depredation of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in 18[clause (xiii)), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) all the assets and liabilities of the firm 20[or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company; (b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date the success/on; (c) the partners of the firm do not receive any consideration or benefit, or indirectly, in any form or manner, other than by way of allotment of shares in the company; and (d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; (e) the 22[ demutualization or] corporatization of a recognized stock exchange in India is carried out in accordance with a scheme for 22[demutualization or] corporatization which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares were issued in discharge the consideration for such takeover of the assets and thus, cost in the hand of the erstwhile firm cannot be taken into consideration for determination of actual cost in the hands of the successor assessee firm but price it discharged for taking over the assets which was paid by issues of equity shares to the partners of the erstwhile firm in. profit sharing ratio and thus there is no violation of proviso to Rule 5 of the IT Rules. In the present case, the assessee has claimed depreciation on the actual cost' incurred by it for acquisition of assets and cost to the assesses was market value of the assets transferred as ascertained by the Govt Approved registered valuer. It is pertinent to note here that on satisfaction of condition envisaged u/s 47(xiii) of the Act, capital gain tax would be exempt. Had the conditions of section 47(xiii) not fulfilled the capital gain would have been payable or chargeable on the basis of market prices of the assets transferred on succession of the firm to the company. In view of these facts, the assessee company is entitled to be allowed depreciation on the basis of actual cost in its hands as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Chitra Publicity Co Pvt Ltd (supra), the Third Member of Ahmedabad Bench of the Tribunal held as under : 26.1 have also gone through the decision of Hon ble Madras High Court in the case of ClT v, Sekar Offset Press [1995] 214 ITR 516 [Mad}. In that case, the assets were transferred at the market value between partners. The Court held that Expln. 3 to s. 43(1) had no application to the case as the main purpose of the transfer of assets was not reduction of tax liability. The decision is relevant The other decision of the Tribunal in the case of Unimed Technologies Ltd. v. Dy. CIT [2000] 73 ITD 150 (Ahdi) Is also considered relevant as in above ease, valuation report furnished by the assessee in support of cost of the assets acquired was accepted by the Tribunal, as AO did not appoint his own valuer nor thought it necessary to examine assessee's valuer. In the absence of any other valuation report and there being no Other evidence to show that the report was not reliable, it was held that valuation report filed by the assessee could not be ignored Factual position here is similar.... In the case of Prakash Chemical Agencies P Ltd, the Ahmedabad Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the partners of the said erstwhile firm. The controversy was that the WDV as per the books of accounts of the firm drawn as on 11.10.2002 were at ₹ 19, 84, 311/-. On the next day, i.e. on 12.10.2002, when the assessee-company had taken over the said firm, the cost in the books of accounts were taken at ₹ 82,51,157/-. The AO has therefore raised a quest/on that why the WDV as such was not carried over by the assessee-company and also raised an objection that the enhanced cost was taken up for the purpose of claim of depreciation. The AO has allowed the depredation on the dosing WDV of the said firm and not on the cost as recorded by the assessee-company. Once the admitted factual position is that this is not the case of transfer of capital assets by holding company to its subsidiary company (Explanation-6 to section 43(1) of IT Act); or this is not the case of capital asset being transferred by amalgamation planation-7 to section 43(1) of IT Act); or transfer of capital asset by demerger (Expianation-7A to section 43(1) of IT Act), then the only recourse for the Revenue Department ought to be that the actual cost defined u/s.43(l) should have been taken for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities of the erstwhile firm. Rest of the Explanation through which AO could have disturbed the actual cost are also not applicable as elaborately explained by Id.AR, because those are in respect - of other circumstances, such assets received by gift or inheritance 'Explanation-2), transaction of sale and lease-back (Explanation 4A) acquisition of same assets (Explanation-4), or where of portion of the is met by the Government by granting subsidy (Explanation-10 of the said section, etc.). Since the action of the AO did not come within the purview of any such enabling sections, therefore we are not in agreement with the substitution of actual cost as replaced by the 'AO. 6.2 In the case of Chitra Publicity Co.(supra), the assessee-company took over advertisement business of a Firm. The assessee-company has claimed deprecation on various assets including hoardings. Assessing Officer reworked the depreciation .by invoking Expiantion-3 to section 43(1) of the Act on the basis that the book value of the hoarding was NIL in the books of the firm. It was held that the main purpose to invoke the said Explanation is to empower the AO to determine actual cost of assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no material on record to show that the valuation by the experts -was either exaggerated or incorrect. In the absence of fraud, collusion, inflation or false transaction made with ulterior purposes, the income-tax authorities were precluded from going behind the agreement of purchase in determining the purchase price and fix their own valuation. In all the above decisions it has been held that the assessee is entitled to depreciation on the price at which the assets were taken over if the conditions of section 47(xiii) of the Act were fulfilled. 10. So far as the various decisions referred by the Id DR, we found them to be distinguishable on facts some of which are discussed as under: - In the Case of Pouiose and Mathen (Pvt) Ltd (supra), the Hon'ble Kerala High Court has held that the assessee is not entitled to depreciation on the revalued figure. But the facts of the case are distinguishable as the assessee company which took over the assets was a partner in the firm having nine partners and other eight partners were shareholder in the company and the assessee company took over assets and liabilities of the firm by dissolving the firm whereas in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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