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TMI Blog2022 (7) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... ee intangible assets, were transferred to the taxpayer for a valuable consideration. The Court found that authorities had neither questioned the valuation of the intangible assets nor did they doubt the genuineness of the transactions. Since the Assessee had succeeded the business of the firm, which had trademarks registered in its name and therefore, was entitled for depreciation. The Court held that the prerequisite for invoking explanation 3 to Section 43(1) of the ITA was that the AO had to establish that the main purpose of the transfer of such asset was to reduce the income-tax liability by claiming extra depreciation on enhanced cost. The Court held that the AO had not recorded any finding in this regard. Accordingly, the Court held that the Assessee was entited to claim depreciation on the intangible assets. Therefore where a partnership firm revalues its intangibles (being eligible for depreciation) prior to succession into a company, the company is entitled to depreciation on such assets as per the revalued figures. We are of the view that since neither the AO nor the CIT(A) had the benefit of the aforesaid decision of the Hon ble High Court, we deem it fit and proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire current balance was treated as Un-Secured loans of partners in the books of the company. The total un-secured loans of partners stood at Rs.13,13,13,508/-. 5. The Assessee entered into a business transfer agreement with one M/s.Filtrauto, SA, France wherein the later had agreed to acquire 60% of the equity shares of the Assessee subject to due - diligence as per details below. a) Allotment of fresh issue of 589348 equity shares of Rs.10 each for a premium of Rs.213.96 per share from the company. b) Acquiring equity shares 364,261 from the existing share holders at a premium of Rs.213.96 per share. 6. On 27th Nov 2008, M/s.Filtrauto, SA France had transferred a sum of Rs.13.20 Crores as part of consideration towards fresh issue of 589348 equity shares and Rs.8.16 Crores to one of the partner's account towards consideration for transfer of 364,261 shares by all other partners after necessary clearance from appropriate authorities. 7. On receipt of the money towards the fresh issue of shares, the Assessee repaid all its un-secured loans that stood in the name of the partners in the books of the Assessee. 8. On acquiring 60% stake in the company, the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid towards the building so as to consider the revalued asset for the purposes of depreciation. Hence the assessee is not entitled to depreciation on revalued building. The Assessee had claimed additional depreciation of Rs 2,80,450 in terms of section 32 (1) (iia) for new plant and machinery acquired and installed after 22.7.2008. In support of the claim the Assessee produced bills in respect of the additions made to the plant and machinery. After examination of the facts and the submissions made by the Assessee the claim of additional deprecation of Rs.2,80,450/- was allowed by the CIT(A). Accordingly, the eligible depreciation for the year including the additional depreciation was taken at Rs.30,40,278/- as against the claim of Rs.58,85,582/- as per the return of income. Therefore, excess claim of depreciation amounting to Rs.23,45,304/- was disallowed. 12. Aggrieved by the order of the CIT(A), the Assessee has preferred these appeals before the Tribunal. The appeal for AY 2009-10 is the previous year in which the partnership firm got converted into a private limited company and the disallowance of depreciation in AY 2010-11 2011-12 is consequential to the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said provisions. Even the CIT(A) has not invoked those provisions. On almost identical facts, the Hon ble Karnataka High Court held that the Assessee is entitled to depreciation on enhanced cost consequent to revaluation prior to conversion of the partnership firm into a private limited company, in the case of Padmini Products Pvt. Ltd. Vs. DCIT ITA No.154 of 2014 judgment dated 5.10.2020. The Assessee in that case was a private limited company that got converted from partnership firm to a company. The Assessee in that case was a company, engaged in the business of manufacturing, dealing and exporting of incense sticks and allied products. The Assessee succeeded a partnership firm (firm) w.e.f. 1 February 2005. Before the firm was converted into private limited company, the firm had revalued all its intangible assets using standard valuation methods. All assets and liabilities (including the intangible assets) of the firm were transferred to the taxpayer and in consideration, the taxpayer allotted its shares (at a premium) to the partners of the firm. The taxpayer claimed depreciation on the intangible assets. The Assessing Officer disallowed the Assessee s claim of depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the taxpayer for a valuable consideration. The Court found that authorities had neither questioned the valuation of the intangible assets nor did they doubt the genuineness of the transactions. Since the Assessee had succeeded the business of the firm, which had trademarks registered in its name and therefore, was entitled for depreciation. The Court held that the prerequisite for invoking explanation 3 to Section 43(1) of the ITA was that the AO had to establish that the main purpose of the transfer of such asset was to reduce the income-tax liability by claiming extra depreciation on enhanced cost. The Court held that the AO had not recorded any finding in this regard. Accordingly, the Court held that the Assessee was entited to claim depreciation on the intangible assets. Therefore where a partnership firm revalues its intangibles (being eligible for depreciation) prior to succession into a company, the company is entitled to depreciation on such assets as per the revalued figures. 17. We are of the view that since neither the AO nor the CIT(A) had the benefit of the aforesaid decision of the Hon ble High Court, we deem it fit and proper to direct the AO to examine t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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