M/s Sanyo BPL Pvt Ltd, Bangalore V. Deputy Commissioner of Income tax, Bangalore

ITA 1395/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9283 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 14-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Depreciation; Fair market value
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1395 / BANG/2 014 (ASSESSMENT YEAR: 20 06 - 07 ) M/S. SANYO BPL PVT. LTD. JUBILEE BLDG., II FLOOR, NO.45, MUSEUM ROAD, BENGALURU - 560025. PAN: AAJCS 0332 B VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 12(3), BENGALURU. RESPONDENT APPELLANT BY : SHRI NAGESWAR RAO, ADVOCATE. RESPONDENT BY : SHRI D.SUDHAKAR RAO, CI T(DR). DATE OF HEARING : 11/08/2016 DATE OF PRONOUNCEMENT : 04 /1 1 /2016 O R D E R PER INTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I II,[CIT(A)], BANGALORE, DATED 11/08/2014 FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPA NIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURI NG AND TRADING OF COLOUR TELEVISION AND ACCESSORIES. RETURN OF INC OME FOR THE ASSESSMENT YEAR 2006-07 WAS FILED ON 28/11/2006 DEC LARING TOTAL LOSS OF RS.50,93,13,937/-. AFTER PROCESSING THE RE TURN OF INCOME U/S 143(1) OF THE INCOME-TAX ACT,1961 [THE ACT FO R SHORT], THE ITA NO.1395/BANG/2014 PAGE 2 OF 25 CASE WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUIN G NECESSARY STATUTORY NOTICE U/S 143(2) OF THE ACT. FINALLY, T HE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATE D 29/12/2009 AT A LOSS OF RS.35,86,32,378/-. WHILE DOING SO, TH E ASSESSING OFFICER (AO) HAS DISALLOWED THE CLAIM FOR DEPRECIAT ION ON THE VALUE OF INTANGIBLE ASSET KNOWN AS DISTRIBUTION NE TWORK OF RS.5,53,72,500/- AND DEPRECIATION ON OTHER FIXED AS SETS WAS DISALLOWED RS.9,53,09,059/- INVOKING THE PROVISION OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. 3. FACTS LEADING TO THE ADDITION ARE AS UNDER: THE ASSESSEE- COMPANY WAS FORMED AS A JOINT VENTURE OF M/S.SANYO ELECTRIC COMPANY LTD., JAPAN AND M/S.BPL SANYO LTD., ON 50:5 0 BASIS. THE ASSESSEE-COMPANY ACQUIRED BUSINESS OF MANUFACTU RE AND TRADING OF COLOUR TELEVISION FROM M/S.BPL LTD., ON A SLUMP PURCHASE BASIS IN TERMS OF BUSINESS TRANSFER AGREEM ENT DATED 14/12/2005 FOR A CONSIDERATION OF RS.360 CRORES. T HIS PURCHASE CONSIDERATION WAS ACCOUNTED IN THE BOOKS OF ASSESSE E-COMPANY AS PER VALUES ASSIGNED BY M/S.CHOWDHARY & ASSOCIATE S, AN INDEPENDENT REGISTERED VALUER, AMONG VARIOUS ASSETS INCLUDING THE DISTRIBUTION NETWORK ON THE BASIS OF MARKET VAL UE. AS PER DEPRECIATION SCHEDULE, THE TOTAL VALUE OF INTANGIBL E ASSETS WAS RS.188,34,00,000/- AND ADDITION OF RS.268,53,00,000 /- IS SHOWN. THE BREAK-UP OF INTANGIBLE ASSETS INCLUDES THE VALU E OF DISTRIBUTION NETWORK OF RS.44,29,80,000/-. ON THIS , THE ASSESSEE- ITA NO.1395/BANG/2014 PAGE 3 OF 25 COMPANY HAD CLAIMED DEPRECIATION AT 25%. THE AO HA S REJECTED THE CONTENTION OF THE ASSESSEE OBSERVING AS FOLLOWS : ITA NO.1395/BANG/2014 PAGE 4 OF 25 ITA NO.1395/BANG/2014 PAGE 5 OF 25 ITA NO.1395/BANG/2014 PAGE 6 OF 25 ITA NO.1395/BANG/2014 PAGE 7 OF 25 ITA NO.1395/BANG/2014 PAGE 8 OF 25 4. BY HOLDING SO, THE AO HAS DISALLOWED DEPRECIAT ION ON DISTRIBUTION NETWORK OF RS.44,29,80,000/- AND DISAL LOWED THE CLAIM FOR DEPRECIATION OF RS.5,53,72,500/-. IN RESPECT OF DEPRECIATION, THE AO ALSO DI SALLOWED DEPRECIATION ON THE ASSETS ACQUIRED FROM BPL LTD., VALUED BY THE ASSESSEE-COMPANY AT RS.810.94 MILLIONS. THE AO WAS OF THE OPINION THAT THE ASSETS WERE VALUED AT HIGHER SIDE IN THE BOOKS OF ACCOUNT IN ORDER TO CLAIM DEPRECIATION. INVOKING PR OVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT, THE AO H AD ALLOWED DEPRECIATION ON THE VALUE AS INCREASED BY 25% OF TH E CLOSING WDV IN THE BOOKS OF BPL LTD., I.E., SELLER. THE RE ASONING GIVEN FOR NOT ACCEPTING THE VALUES AS ACCOUNTED FOR IN THE BO OKS OF ACCOUNT IS GIVEN IN PARA.8 OF THE ASSESSMENT ORDER WHICH IS AS UNDER: ITA NO.1395/BANG/2014 PAGE 9 OF 25 ITA NO.1395/BANG/2014 PAGE 10 OF 25 ITA NO.1395/BANG/2014 PAGE 11 OF 25 ITA NO.1395/BANG/2014 PAGE 12 OF 25 ITA NO.1395/BANG/2014 PAGE 13 OF 25 ACCORDINGLY DEPRECIATION OF RS.9,53,09,059/- WAS DI SALLOWED. 5. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE CIT(A) WHO VIDE PARAS.8.1 TO 9 OF HIS ORDER HAS CONFIRMED THE DISALLOWANCE OF DEPRECIATION AND DISTRIBUTION NETWORK VIDE PARAS.10 AND 10.1 UPHELD RESTRICTING DEPRECIATION ALLOWANCE ON THE VA LUE OF CLOSING WDV OF THE TRANSFEROR COMPANY AS INCREASED BY 25%. ITA NO.1395/BANG/2014 PAGE 14 OF 25 6. BEING AGGRIEVED, THE ASSESSEE-COMPANY IS IN PR ESENT APPEAL RAISING THE FOLLOWING GROUNDS OF APPEAL: 7. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. ITA NO.1395/BANG/2014 PAGE 15 OF 25 8. GROUND NOS.2 AND 3 CHALLENGE THE DISALLOWAN CE OF CLAIM FOR DEPRECIATION ON DISTRIBUTION NETWORK. THE AO HAS D ENIED THE CLAIM FOR DEPRECIATION ON TWO COUNTS: (1) VALUATION OF DISTRIBUTION NETWORK IS ON VERY HIGH SIDE AND (2) THERE WAS NO T RANSFER OF ANY DISTRIBUTION NETWORK OF M/S.BPL LTD. THE AO WAS O F THE VIEW THAT EVEN IF DEPRECIATION IS TO BE ALLOWED IT CAN BE ALL OWED ONLY TO THE EXTENT OF 50% I.E. PERCENTAGE OF SHARES HELD BY M/S .SANYO ELECTRIC COMPANY LTD., THE FACT THAT VALUATION OF L AND WAS SHOWN AT LESSER VALUE THAN VALUE FIXED AS PER GUIDANCE VA LUE UNDER STAMP VALUATION ACT LED AO TO BELIEVE THAT THE VALU E APPORTIONED TO VARIOUS ASSETS IS NOT FAIR MARKET VALUE BUT DONE WITH INTENTION OF CLAIMING HIGHER DEPRECIATION I.E. ULTERIOR MOTIV E OF TAX EVASION. THEREFORE, THE AO DISALLOWED THE CLAIM. 9. THE CIT(A) ALSO CONFIRMED THE ADDITION HOL DING THAT THERE IS NO TRANSFER OF DISTRIBUTION NETWORK. HE FURTHER HELD THAT IT DOES NOT FALL WITHIN THE DEFINITION OF ANY OTHER BUSINES S OR COMMERCIAL RIGHTS. 10. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THIS ISSUE CAN ALSO CONSIDERED FROM ANOTHE R ANGLE. EVEN ASSUMING THAT THERE IS NO INTANGIBLE ASSETS AS DIST RIBUTION NETWORK AS CLAIMED BY THE ASSESSEE, EXCESS OF CONSI DERATION PAID OVER ASSETS TAKEN OVER CONSTITUTES GOODWILL AS PER JUDICIAL PRECEDENTS IN THE LIGHT OF THE DECISION OF THE HON BLE DELHI HIGH ITA NO.1395/BANG/2014 PAGE 16 OF 25 COURT IN THE CASE OF TRIUNE ENERGY SERVICES (P) LTD . IN ITA NOS.40 & 189 OF 2015. INTANGIBLE ASSETS QUALIFYING FOR DE PRECIATION IN TERMS OF THE LAW LAID DOWN BY THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. SNIFS SECURITIES LTD. (348 ITR 302). THUS THE LAW IS FAIRLY SETTLED TO THE EXTENT THAT EXCESS OF CONS IDERATION PAID OVER ASSETS TAKEN OVER ASSETS CONSTITUTES GOODWILL AND THE SAME IS ELIGIBLE FOR DEPRECIATION. BUT THE MATTER DOES NOT END THERE. VALUATION OF GOODWILL IS ALSO THE BONE OF CONTENTIO N BETWEEN THE ASSESSEE AND THE REVENUE. DEPRECIATION IS ADMISSIB LE ON THE ACTUAL COST AS THE ACTUAL COST IS REQUIRED TO BE DE TERMINED. THE TERM ACTUAL COST HAS BEEN DEFINED U/S 43(1) WHICH READS AS UNDER: 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNL ESS THE CONTEXT OTHERWISE REQUIRES (1)'ACTUAL COST' MEANS THE ACTUAL COST 37 OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY: THE LEGISLATURE HAS PREFIXED THE WORD ACTUAL TO T HE WORD COST IN SECTION 43(1) WHICH SUGGESTS THAT THE INTENTION OF THE LEGISLATURE WAS TO CURB THE MALPRACTICES AND TENDENCIES TO INFL ATE CAPITAL COSTS FOR OBTAINING HIGHER DEPRECIATION WHILE NOT B URDENING THE OTHER WITH ANY MATERIAL TAX LIABILITY AND TO EXCLU DE COLLUSIVE, INFLATED AND FICTITIOUS COST. IN THIS CONNECTION, OBSERVATION MADE BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA (125 ITR 510) ARE APT. THE PROVISIONS OF SECTION 4 3(1) ARE CONSIDERED BY THEIR LORDSHIPS AS UNDER: ITA NO.1395/BANG/2014 PAGE 17 OF 25 ITA NO.1395/BANG/2014 PAGE 18 OF 25 THUS, THE ASSESSING AUTHORITY HAS AMPLE POWER TO DE TERMINE THE ACTUAL COST OF THE ASSET WHICH IS ELIGIBLE FOR DE PRECIATION AS THE CIRCUMSTANCES OF THE CASE WOULD JUSTIFY. IN THE PR ESENT CASE, THE VERY FACT THAT THE SELLER OF THE BUSINESS HAD 50% I NTEREST IN THE COMPANY I.E. ASSESSEE-COMPANY BY VIRTUE OF HOLDING 50% SHARES, AND THE ASSESSEE-COMPANY HAD FAILED TO CONTROVERT T HE MISGIVINGS OF THE AO AS TO THE INFLATION OF THE ACTUAL COST OF THE ASSET. THESE CIRCUMSTANCES WOULD CERTAINLY JUSTIFY THE AO TO INF ER THAT FICTITIOUS PRICE HAS BEEN PUT ON THE ASSET IN ORDER TO AVAIL H IGHER DEPRECIATION UNDER THE IT ACT, PERHAPS WITH SOME OT HER ULTERIOR MOTIVE WHICH THE AO HAD CHOSEN NOT TO PROBE. IN AN Y EVENT, RIGHT TO USE DISTRIBUTION NETWORK DOES NOT RESULT I N CREATION OF ANY INTANGIBLE ASSET AS EITHER THE TRANSFEROR COMPANY O R THE ASSESSEE- ITA NO.1395/BANG/2014 PAGE 19 OF 25 COMPANY HAD PAID ANY MONEY TO THE DISTRIBUTORS FOR GIVING THEM DISTRIBUTORSHIP OF DEALING IN THE PRODUCTS OF THE A SSESSEE- COMPANY. THEREFORE, WE HOLD THAT THE AO IS JUSTIFI ED IN DENYING DEPRECIATION CLAIM ON THE INTANGIBLE ASSET OF DISTR IBUTION NETWORK ON THE INFLATED VALUE OF THE ASSET. IT IS VERY ING ENIOUS ATTEMPT BY THE ASSESSEE-COMPANY TO CLAIM HIGHER DEPRECIATION A ND AVOID PAYMENT OF TAX IN THE HANDS OF THE TRANSFEROR OF TH E BUSINESS BY CLAIMING TO BE SLUMP SALE TRANSACTION. THUS IT IS N OTHING BUT A COLOURFUL DEVICE ADOPTED WITH THE INTENTION OF TAX AVOIDANCE AND THE PRINCIPLES ENUNCIATED BY THE HONBLE APEX COURT IN THE CASE OF MCDOWELL& CO. LTD V. CTO (1984) ( 154 ITR 148) ARE SQUARELY APPLICABLE. THUS, THE GROUNDS OF APPEAL ARE DISMIS SED. 11. GROUND NOS.5 TO 10 CHALLENGE THE ADDITION MAD E BY THE AO INVOKING EXPLANATION 3 TO SECTION 43(1) OF THE INCO ME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHOR T]. 12. LEARNED COUNSEL FOR ASSESSEE ARGUED THAT THE CLAIM FOR DEPRECIATION WAS MADE ON THE BASIS OF VALUATION DON E BY AN INDEPENDENT VALUER AMONG VARIOUS ASSETS. HE SUBMIT TED THAT THE AO HAS DISALLOWED DEPRECIATION ON FIXED ASSETS ALLE GING OVER- VALUATION OF FIXED ASSETS IN ORDER TO CLAIM DEPRECI ATION. THE AO HAD COME TO OPINION THAT THE ASSETS ARE OVER-VALUED WITHOUT ANY BASIS AND EVIDENCE. IN RESPECT OF DISALLOWANCE OF DEPRECIATION ON DISTRIBUTION NETWORK LEARNED COUNSEL FOR ASSESSEE S UBMITTED THAT ITA NO.1395/BANG/2014 PAGE 20 OF 25 EVEN ASSUMING THAT DISTRIBUTION NETWORK HAS NOT RES ULTED ANY INTANGIBLE ASSET, EXCESS PRICE PAID FOR ACQUISITION OF THE BUSINESS SHOULD BE TREATED AS GOODWILL WHICH IS ELIGIBLE FOR DEPRECIATION IN THE LIGHT OF DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF (340 ITR 302). LEARNED COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT EXCESS CONSIDERATION PAID FOR ASSETS TAKEN OVE R IS NOTHING BUT DEPRECIATION IN TERMS OF LAW LAID DOWN BY THE H ONBLE DELHI HIGH COURT IN THE CASE OF TRUINE ENERGY SERVICES PVT. LTD . IN ITA NOS.40 & 189/15. THE SUM AND SUBSTANCE OF THE ARGU MENT OF LEARNED COUNSEL FOR ASSESSEE IS THAT EVEN ASSUMING THAT NO INTANGIBLE ASSETS ARE ACQUIRED ON ACCOUNT OF ACQUIS ITION OF ERSTWHILE BTV MANUFACTURING OF BRI LTD., THE EXCES S OF CONSIDERATION SHOULD BE TREATED AS A GOODWILL WHICH IS ELIGIBLE FOR DEPRECIATION IN TERMS OF LAW LAID DOWN BY THE HONB LE SUPREME COURT IN THE CASE OF CIT VS. SNIFS SECURITIES LTD. (340 ITR 302). ON THE OTHER HAND, LEARNED CIT(DR) PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 13. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IN THE PRESENT APPEAL, THE ISSUE INVOLVED IS WHETHER THE AO WAS JUSTIFIED IN INVOKING EXPLANATION 3 TO SECTI ON 43(1) FOR THE PURPOSE OF DETERMINING THE ACTUAL COST TO ALLOW DEP RECIATION THEREON ON DISTRIBUTION NETWORK WHICH CONSTITUTES I NTANGIBLE ASSETS WHICH IS ELIGIBLE FOR DEPRECIATION. WHETHER THE CLAIM OF ITA NO.1395/BANG/2014 PAGE 21 OF 25 DEPRECIATION ON ENHANCED VALUE OF ASSET IS ADMISSIB LE. UNDISPUTED FACTS ARE THAT THE ASSESSEE-COMPANY ACQU IRED MANUFACTURING OF COLOUR TELEVISION FROM BPL LTD., O N A SLUMP SALE BASIS FOR A CONSIDERATION OF RS.360 CRORES. M/S.BPL LTD., HAS 50% SHARE HOLDING IN THE ASSESSEE-COMPANY. THUS, M/S.B PL LTD., HAS GOT A SUBSTANTIAL INTEREST IN THE ASSESSEE-COMPANY BY VIRTUE OF HOLDING SHARES FOR MORE THAN 20%. THERE IS NO DISP UTE THAT THE BUSINESS OF MANUFACTURING AND TRADING OF COLOUR TV WAS ACQUIRED FROM M/S.BPL LTD., ON A SLUMP SALE BASIS WHICH MEAN S THE CONSIDERATION PAID BY THE PURCHASER I.E THE ASSESSE E-COMPANY TO M/S.BPL LTD., IS NOT APPORTIONED ASSET-WISE BY THE SELLER I.E. M/S.BPL LTD., BUT THE PURCHASER I.E. THE ASSESSEE-C OMPANY APPORTIONED THE VALUE WHICH COULD BE REASONABLY ATT RIBUTED TO ASSETS ACQUIRED THROUGH THE SCHEME OF SLUMP SALE BA SED ON AN INDEPENDENT EXPERT VALUERS OPINION. IN THE PRESEN T CASE, ASSESSEE-COMPANY VALUED FIXED ASSETS AT RS.81.19 CR ORES OUT OF WHICH VALUE FOR LAND WAS SHOWN AT RS.6.22 CRORES AN D OTHER FIXED ASSETS ON WHICH DEPRECIATION WAS CLAIMED WAS VALUED AT RS.73.83 CRORES. AS AGAINST THIS, CLOSING WDV OF THESE ASSE TS IN THE BOOKS OF M/S.BPL LTD., TRANSFEROR COMPANY WAS ONLY RS.15. 75 CRORES. THUS, DIFFERENCE BETWEEN CLOSING WDV IN THE HANDS O F THE SELLER I.E. M/S.BPL LTD., AND THE VALUES OF THE FIXED ASSE TS ON WHICH DEPRECIATION WAS CLAIMED BY THE ASSESSEE-COMPANY IS RS.58.8 CRORES. THE CONTENTION OF THE ASSESSEE-COMPANY IS THAT FIXED ASSETS ACQUIRED ON ACCOUNT OF PURCHASE OF BUSINESS ARE VALUED ITA NO.1395/BANG/2014 PAGE 22 OF 25 BASED ON THE VALUATION MADE BY INDEPENDENT VALUER. THOUGH THE AO ACCEPTED IN PRINCIPLE, THE METHOD OF APPORTIONME NT OF VALUES TO THE FIXED ASSETS BASED ON THE VALUATION OF INDEP ENDENT VALUER, BUT AO FOUND FAULT IN THE METHOD OF VALUATION DONE BY THE VALUER AS, ACCORDING TO HIM, THE IMMOVABLE PROPERTY OWNED BY THE ASSESSEE-COMPANY AT NOIDA, THE VALUE WAS SHOWN LESS ER THAN THE VALUE AS PER THE STAMP DUTY. THIS MADE THE AO TO S USPECT THAT THE METHODOLOGY ADOPTED BY THE VALUER IS NOT FREE F ROM DOUBT AND THEREFORE, THE AO HAD NOT ACCEPTED THE VALUES A SSIGNED BY THE ASSESSEE-COMPANY TO THE ASSETS AND FELT THAT TH E ASSETS WERE OVERVALUED IN ORDER TO CLAIM DEPRECIATION WITH THE INTENTION OF AVOIDING TAX LIABILITY AND THEREFORE, INVOKED THE P ROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. WHILE D OING SO, THE AO ACCEPTED THAT HIGHER VALUE OF 25% OVER AND ABOVE CL OSING WDV IN THE HANDS OF M/S.BPL LTD. I.E. TRANSFEROR. PERMISS ION AS ENVISAGED UNDER PROVISIONS OF EXPLANATION 3 TO SECT ION 43(1) FROM HIGHER AUTHORITIES WAS ALSO OBTAINED. THE ONLY OBJ ECTION OF THE ASSESSEE-COMPANY SEEMS TO BE THAT EXCEPT SUBJECTIVE OPINION OF ASSESSING OFFICER, THERE WAS NO MATERIAL REFERRED B Y THE AO INDICATING OVERVALUATION OF THE ASSETS OF THE ASSES SEE-COMPANY. THUS, IT WAS CONTENDED THAT THE AO SHOULD NOT HAVE INVOKED THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. 14. IT IS NEEDLESS TO MENTION THAT DEPRECIATION IS ADMISSIBLE ONLY ON ACTUAL COST INCURRED BY THE ASSESSEE-COMPAN Y. WHEN THE ITA NO.1395/BANG/2014 PAGE 23 OF 25 ASSESSEE-COMPANY PURCHASED AS A GOING CONCERN AT A SLUMP PRICE, IDENTIFICATION OF THE ACTUAL COST IN RESPECT OF DIFFERENT ASSETS POSES CERTAIN PROBLEMS. IT IS AN ACCEPTED PRACTICE THAT CONSIDERATION PAID FOR ACQUISITION OF BUSINESS ALLO CATION TOWARDS VARIOUS ASSETS BASED ON REPORT OF EXPERT. IN THE IN STANT CASE, THE ASSESSEE-COMPANY EXACTLY DID THE SAME THING BUT THE REPORT OF THE EXPERT IN THIS CASE I.E. M/S.CHOWDHARU & ASSOCI ATES WAS NOT ACCEPTED BY THE AO ON NOTICING THAT THE VALUER HAD ASSIGNED LESSER VALUE TO LAND PROPERTY AND MORE VALUE IN RES PECT OF OTHER ASSETS WHICH ARE ELIGIBLE FOR DEPRECIATION. THIS P ROMPTED THE AO TO IGNORE THE VALUER REPORT AND ESTIMATE THE ACTUAL COST AT 25% HIGHER THAN VALUE OF CLOSING WDV IN THE BOOKS OF M/ S.BPL LTD. INVOKING THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. THE SAID PROVISIONS READ AS UNDER: WHERE, BEFORE THE DATE OF ACQUISITION BY THE ASSES SEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PERSO N FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND THE [ASSESSING] OFFICER IS SATISFIED THAT THE MAIN PURP OSE OF THE TRANSFER OF SUCH ASSETS, DIRECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTION OF A LIABILITY TO INCOM E TAX (BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST), THE TAX (BY CLAIMING DEPRECIATION W ITH 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 [JOI NT COMMISSIONER], DETERMINE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 15. FROM A BARE READING OF THE PROVISIONS OF EXP LANATION 3 TO SECTION 43(1), IT IS CLEAR THAT NOWHERE THE PROVISI ONS SPEAKS OF MARKET VALUE BEING DETERMINED BY THE AO BUT SPEAKS OF ACTUAL COST BEING DETERMINED BY THE AO WITH APPROVAL OF TH E JOINT ITA NO.1395/BANG/2014 PAGE 24 OF 25 COMMISSIONER IN THE SPECIFIED CIRCUMSTANCES. THE P RE-REQUISITE CONDITION NECESSARY FOR INVOKING OF THE SAID EXPLAN ATION 3 TO SECTION 43(1) ARE ONLY - (1) THAT THE ASSET AT ANY TIME WAS USED BY ANY OTHER PERSON FOR THE PURPOSE OF BUSINESS. I N THIS CASE, IT IS UNDISPUTED FACT THAT M/S.BPL LTD., FROM WHOM THE ASSESSEE- COMPANY HAD ACQUIRED THE ASSETS HAD USED THE ASSET AND CLAIMED DEPRECIATION. THUS THIS CONDITION IS SATISFIED. (2) THE MAIN PURPOSE OF TRANSFER OF SUCH ASSETS DIRECTLY OR INDI RECTLY TO THE ASSESSEE-COMPANY WAS FOR REDUCTION OF LIABILITY TO INCOME-TAX. IN THE PRESENT CASE, TRANSACTION OF ACQUISITION BUSINE SS AS A GOING CONCERN IS BETWEEN TWO RELATED PARTIES AND THE SELL ER HAD A SUBSTANTIAL INTEREST BY HOLDING 50% SHARE. THE ASS ETS WERE ALREADY DEPRECIATED IN THE HANDS OF THE SELLER I.E. M/S.BPL LTD., HIGHER VALUES WERE ASSIGNED BY THE ASSESSEE-COMPANY IN ORDER TO AVOID TAX LIABILITY. THUS, INGREDIENTS WHICH ARE N ECESSARY FOR INVOKING EXPLANATION 3 TO SECTION 43(1) ARE SATISFI ED AND THE AO IS JUSTIFIED IN HIS ACTION IN RESTRICTING THE ALLOWANC E OF DEPRECIATION ON WDV AT HIGHER THAN 25% OF THE CLOSING STOCK. TH E FINDINGS GIVEN BY US IN RESPECT OF DEPRECIATION ON DISTRIBUT ION NETWORK VIDE PARA 10 EQUALLY HOLDS GOOD EVEN IN RESPECT OF VALUA TION OF DEPRECIABLE ASSETS. THUS, GROUNDS OF APPEAL NOS.5 T O 10 ARE DISMISSED. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2016 SD/- SD/- ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.1395/BANG/2014 PAGE 25 OF 25 PLACE : BANGALORE D A T E D : 04/11/2016 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE