M/s.Padmini Products Pvt. Ltd., Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1531/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5422 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 23-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M GANDHI
• Assessee Lawyers: M K BIJU JT BENGALURU
• Keywords: Depreciation; Wholly owned subsidiary
• Section: 43B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ITA NO.1530/BANG/2016 ASSESSMENT YEAR : 2013-14 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BANGALORE. VS. M/S. PADMINI PRODUCTS PVT. LTD., 157, K. KAMRAJ ROAD, BANGALORE 560 042. PAN: AADCP 1790L APPELLANT RESPONDENT ITA NO.1531/BANG/2016 ASSESSMENT YEAR : 2013- 14 M/S. PADMINI PRODUCTS PVT. LTD., 157, K. KAMRAJ ROAD, BANGALORE 560 042. PAN: AADCP 1790L VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI M.K. BIJU, JT. CIT(DR)(ITAT-3), BENGALURU. RESPONDENT BY : SHRI M. GANDHI, CA DATE OF HEARING : 20.04.2017 DATE OF PRONOUNCEMENT : 28.04.2017 ITA NOS.1530 & 1531/BANG/2016 PAGE 2 OF 11 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE CROSS APPEALS ARE PREFERRED BY THE ASSESS EE AS WELL AS REVENUE AGAINST THE ORDER OF CIT(APPEALS). SINCE T HE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE, HOWEVER, PREFER TO AD JUDICATE THEM ONE AFTER THE OTHER. ITA NO.1530/BANG/2016 2. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(AP PEALS) - 5, BANGALORE, IS OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN LAW IN HOLDING THAT THE EMPLOYEE'S CONTRIBUTION TO PF AND ESI BEYOND PERIOD STIPULATED IN SEC.36(1) (VA) R.W.S 2(24)(X) AND SEC.43B AND PAID ON OR BEFORE THE DUE DATE FOR FURNISHING RETURN U/S 139(1) AS DEDUCTIBLE EXPENDIT URE. FURTHER, THE CIRCULAR NO.22/2015 DATED 17/12/2015 R ELIED BY CIT(A) DOES NOT APPLY TO CLAIM OF DEDUCTION RELATIN G TO EMPLOYEES CONTRIBUTION. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED U PON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT ASSESS MENT ORDER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEA L. ITA NOS.1530 & 1531/BANG/2016 PAGE 3 OF 11 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE IMPUGNED GROUND IS S QUARELY COVERED BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF SABARI ENTERPRISES IN WHICH IT WAS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT CONTRIBUTIONS TO THE PROVIDENT FUND AND EMPLOYEE ST ATE INSURANCE BEYOND THE PERIOD STIPULATED IN SECTION 36(1)(VA) R.W.S. 2 (24)(X) AND SECTION 43B OF THE ACT, BUT PAID ON OR BEFORE THE DUE DATE FOR FUR NISHING RETURN U/S. 139(1) IS DEDUCTIBLE. THE CIT(APPEALS) HAS DECIDED THE IS SUE FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT. THEREFORE, THERE IS NO ERROR IN THE ORDER OF CIT(APPEALS). 4. THE LD. DR PLACED RELIANCE UPON THE ORDER OF AO. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE CIT(APPEALS) HAD DECIDED THE ISSUE FOLLOWING THE JUDGMENT OF HON'BLE JURISDICTIONAL HI GH COURT. THEREFORE, WE FIND NO INFIRMITY THEREIN. ACCORDINGLY WE CONFIRM HIS ORDER. ITA NO.1531/BANG/2016 6. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1) THE ORDER OF THE LEARNED ASSESSING OFFICER IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE APPELLANT IS NOT JUSTIFIED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.1530 & 1531/BANG/2016 PAGE 4 OF 11 2) AS REGARDS DISALLOWANCE OF DEPRECIATION ON INTANG IBLE ASSETS TO THE EXTENT OF RS.29248420/- 1. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN DENYING DEPRECIATION OF RS 1,42,92,623/- ON INTANGI BLES BEING BRAND NAMES AND TRADEMARKS VALUED AT S.65.26. 40,150/-. 2. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T REVALUATION OF THE INTANGIBLES WAS EFFECTED BY THE ERSTWHILE FIRM, BEFORE THE SUCCESSION, AND NOT THAT OF THE AP PELLANT AND THEREFORE, THEY WERE NOT JUSTIFIED IN OBSERVING THAT THE AFORESAID INTANGIBLE ASSETS WERE UNDER SECTION 47(X III) OF THE IT ACT. 3. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T THE ASSETS ( INCLUDING THE INTANGIBLE ASSETS ) OF THE ERSTWHILE FIRM WERE TRANSFERRED TO THE APPELLANT IN A SUCCESSION AS CON TEMPLATED UNDER SECTION 47(XIII) OF THE IT ACT. 4. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T NEITHER UNDER SECTION 47(XIII) OR ELSEWHERE IN THE IT ACT I S THERE A STIPULATION THAT ASSETS CANNOT BE RE-VALUED PRIOR T O SUCCESSION OR THE FACT THAT TRANSFER NEEDS TO NECES SARILY TAKE PLACE AT THE BOOK VALUE. THE VERY FACT THAT SECTION 47(XIII) EXEMPTS SUCH TRANSACTION FROM THE PURVIEW OF TRANSF ER FOR THE PURPOSE OF CAPITAL GAINS IS THAT THERE IS A CONTEMP LATION THAT IN A SCENARIO OF SUCCESSION THERE COULD ARISE PROFITS DUE TO THE SALE OF ASSETS AT A VALUE HIGHER THAN THE COST. 5. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T SECTION 47(XIII) MAKES AN EXPLICIT MENTION OF TRANSFER OF I NTANGIBLE ASSETS. 6. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T WHERE IT WAS INTENDED THAT THE TRANSFER OF ASSETS SHOULD NOT TAKE PLACE AT A VALUE HIGHER THAN THE BOOK VALUE, THE SAME HAS BEEN EXPLICITLY PROVIDED FOR AS IN THE CASE OF SECTION 2 (19AA) OF THE ACT WHICH EXPLAINS THE TERM DE MERGER . 7. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T IN CASES WHERE IT WAS INTENDED THAT THE EFFECT OF REVALUATIO N NEED TO BE IGNORED THE SAME HAS BEEN EXPLICITLY PROVIDED FOR ITA NOS.1530 & 1531/BANG/2016 PAGE 5 OF 11 AS ENVISAGED UNDER SECTION 50B OF THE ACT, DEALING WITH COMPUTATION OF CAPITAL GAINS IN A SLUMP SALE. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHORITI ES HAVE FAILED TO APPRECIATE THAT THE REVALUATION OF THE AS SETS OF THE FIRM HAS TO BE NECESSARILY CARRIED OUT AND THE PART NERS' ACCOUNTS HAVE TO BE NECESSARILY CREDITED IN RESPECT OF SUCH REVALUATION WHEN THE BUSINESS OF THE FIRM IS SUCCEE DED TO BY THE COMPANY KEEPING IN MIND THE BUSINESS REALITY TH AT THE SHARES OF THE COMPANY MAY BE LISTED OR VENTURE CAPI TALISTS MAY INVEST IN THE COMPANY. 9. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T SECTION 43(1)OF THE ACT WHICH DEFINES THE TERM 'ACTUAL COST ' NOWHERE STIPULATES THAT THE INCURRENCE OF THE EXPENDITURE N EEDS TO BE NECESSARILY IN CASH. 10. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T BOARD CIRCULAR NO.21 DATED 09/07/1969 IN PARAGRAPH 11 (THOUGH CURRENTLY WITHDRAWN VIDE CIRCULAR NO.382 FOR DIFFER ENT REASONS) HAD RECOGNIZED THE TRANSFER OF TECHNICAL K NOW-HOW OR SERVICES OR DELIVERY ABROAD OF MACHINERY AND PLA NT FOR CONSIDERATION IN THE FORM OF SHARES. 11. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T THE BOARD CIRCULAR NO.382 DATED 04/05/1984 CLARIFIES THE ASPECT REGARDING 'TAXATION OF SHARES OF INDIAN COMPANIES ALLOTTED TO NON-RESIDENTS IN CONSIDERATION FOR THE PURCHASE OF MACHINERY AND PLANT DELIVERED ABROAD UNDER CLAUSE ( VI/VII) OF SUB-SECTION (1), THEREBY RECOGNIZING THE ACQUISITION OF ASSETS FOR CONSIDERATION OTHER THAN CASH. 12. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE SCH EDULE VI OF THE COMPANIES ACT, 1956 ALSO RECOGNIZES THE ALLO TMENT OF SHARES FOR CONSIDERATION OTHER THAN CASH. 13. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER, IN DISALLOWING THE DEPRECIATION ON INTANGIBLE ASSETS, WHEN IN FACT, THE EXISTENCE OF THE AFORESAID INTANGIBLE ASSETS AND VALUATION THEREOF CERTIFIED BY A VALUER HAS NOT BEE N DISPUTED BY THE LEARNED ASSESSING OFFICER. ITA NOS.1530 & 1531/BANG/2016 PAGE 6 OF 11 14. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN DISALLOWING THE DEPRECIATION, MERELY BECAUSE HIS PREDECESSOR HAD NOT CONFIRMED SUCH DISALLOWANCE EAR LIER WHICH WAS FURTHER CONFIRMED BY THE HON'BLE ITAT VID E ITS ORDER NO.ITA NO.429 TO 432/BNG/2013 FOR A YS 2005- 06 TO 2008-09 DATED 10.01.2014 IN THE APPELLANT'S O WN CASE. FOR THE ABOVE REASONS AND FOR SUCH OTHER REASONS WH ICH MAY BE ALLOWED BY THE HONORABLE MEMBERS TO BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE AFORESAID APPEAL BE ALLOWED. 7. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE SOLITARY GROUND INVO LVED IN THIS APPEAL IS WITH REGARD TO DEPRECIATION OF INTANGIBLE ASSETS AND THI S ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2012-13, COPY OF ORDER OF TRIBUNAL IS PLACED ON REC ORD. 8. THE LD. DR, ON THE OTHER HAND, HAS PLACED RELIAN CE UPON THE ORDER OF CIT(APPEALS). 9. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE HAS B EEN RAISED BEFORE THE TRIBUNAL IN EARLIER AY 2012-13. THE TRIBUNAL FOLLO WING ITS ORDER FOR EARLIER YEARS HAD DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, AFTER HOLDING THAT DEPRECIATION IS ALLOWABLE ON INTANGIBLE ASSETS. TH E RELEVANT OBSERVATIONS OF THE ORDER OF TRIBUNAL ARE EXTRACTED HEREUNDER FO R THE SAKE OF REFERENCE:- '8. WITH RESPECT TO GROUND NO.2, IT IS POINTED OUT BY THE LEARNED DR THAT THIS ISSUE IS COVERED AGAINST THE A SSESSEE IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS FR OM 2005-06 TO ITA NOS.1530 & 1531/BANG/2016 PAGE 7 OF 11 2008-09 IN ITA NOS.429 TO 430/BANG/2013 DATED 10/1/ 2014, WHEREIN AT PARAGRAPH 16 TO 25 IT HAS BEEN HELD AS U NDER: 16. THE FIRST QUESTION FOR ADJUDICATION BEFORE US IS WHETHER THE EARLIER PARTNERSHIP FIRM WAS REQUIRED U NDER LAW TO REVALUE THE ASSETS BEFORE ITS CONVERSION INT O A COMPANY. AS RIGHTLY POINTED OUT BY THE LEARNED COUNS EL FOR THE ASSESSEE, WHEN A PARTNERSHIP FIRM IS DISSOLVED, IT NEEDS TO REVALUE ITS ASSETS AS THE PARTNERS ARE ENT ITLED TO RECEIVE THE VALUE OF THE ASSETS AS ON THE DATE OF D ISSOLUTION IN THE RATIO OF THEIR CONTRIBUTION OF CAPITAL AND, THEREFORE, TO ARRIVE AT THE VALUE OF THE ASSETS AS ON THE DATE OF DISSOLUTION THE REVALUATION OF ASSETS AND LIABILITI ES IS REQUIRED TO BE DONE. SIMILAR IS THE CASE WHERE ANY OF THE PARTNERS RETIRES OR ANY NEW PARTNER IS INDUCTED. BU T WHAT HAPPENS WHEN THERE IS NO INDUCTION OF A NEW PARTNER OR RETIREMENT OF ANY PARTNER OR DISSOLUTION OF PARTNER SHIP FIRM? THE REQUIREMENT OF REVALUATION OF THE ASSETS AND LIABILITIES ARISES ONLY IN THE CIRCUMSTANCES MENTIO NED ABOVE. IN THE CASE ON HAND, THE ASSESSEE HAD REVALU ED ITS ASSETS ON THE GROUND THAT IT WAS GETTING CONVERTED INTO A PRIVATE LIMITED COMPANY. THE LEARNED COUNSEL FOR TH E ASSESSEE HAD PLACED RELIANCE UPON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF KARTIKEYA A.V SARABHAI (CITED SUPRA) IN SUPPORT OF HIS CONTENTION THAT THE SHAREHOLDERS WHO BUY SHARES WILL NOT HAVE ANY I NTEREST IN THE PROPERTY OF THE COMPANY WHICH IS ENTIRELY DI STINCT FROM THE SHAREHOLDER AND THE TRUE POSITION OF THE SHAREHOLDER IN A COMPANY ON BUYING THE SHARES IS TH AT HE BECOMES ENTITLED TO A PERCENTAGE IN THE PROFITS OF THE COMPANY IF AND WHEN COMPANY DECLARES, SUBJECT TO MEMORANDUM OF ASSOCIATION THAT THE PROFITS OR ANY PORTION THEREOF SHOULD BE DISTRIBUTED AS DIVIDEND A MONGST THE SHAREHOLDERS AND HE HAS FURTHER RIGHT TO PERCEN TAGE IN THE ASSETS OF THE COMPANY WHICH WOULD BE LEFT-OVER AFTER WINDING UP. THUS, HE TRIED TO BRING OUT DISTINCTION BETWEEN THE RIGHTS OF THE PARTNERS IN A PARTNERSHIP FIRM WHICH IS JOINT AND SEVERAL IN CONTRAST TO THE RIGHT S AND LIABILITIES OF THE SHAREHOLDERS IN A COMPANY. HE HA S ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS REPORTE D IN 341 ITR 1 (SC) TO BRING OUT DISTINCTION BETWEEN THE HOLDING COMPANY AND WHOLLY OWNED SUBSIDIARY IN WHIC H THE HONBLE SUPREME COURT HAS HELD THAT THE LEGAL RELATIONSHIP BETWEEN THE HOLDING COMPANY AND WHOLLY OWNED SUBSIDIARY IS THAT THEY ARE TWO LEGALLY DISTI NCT ITA NOS.1530 & 1531/BANG/2016 PAGE 8 OF 11 PERSONS AND HOLDING COMPANY DOES NOT OWN THE ASSETS OF A SUBSIDIARY AND IN LAW THE MANAGEMENT OF THE BUSINES S OF THE SUBSIDIARY ALSO LIES WITH ITS DIRECTORS. THUS, ACCORDING TO HIM, THE PARTNERSHIP FIRM AND THE ASSESSEE COMPA NY ARE TWO DIFFERENT AND DISTINCT LEGAL ENTITIES AND IT CA NNOT BE SAID THAT THE ASSESSEE COMPANY HAS NOT ACQUIRED ANY ASSETS FROM THE ERSTWHILE PARTNERSHIP FIRM. TO APPR ECIATE THESE CONTENTIONS OF THE ASSESSEE, WE HAVE TO EXAMI NE THE PROCEDURE AND EFFECT OF CONVERSION OF A PARTNERSHIP FIRM INTO A COMPANY. THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. TEXSPIN ENGG AND MANUFACTURING WORK S REPORTED IN (2003) 263 ITR 345 (BOM) HAS CONSIDERED THE EFFECT OF CONVERSION OF A PARTNERSHIP FIRM INTO A L IMITED COMPANY BY VIRTUE OF SEC. 575 OF THE COMPANIES ACT AND HAS HELD THAT UNDER PART IX OF THE COMPANIES ACT, WHE N A PARTNERSHIP FIRM IS CONVERTED TO A LIMITED COMPANY, THE PROPERTIES OF THE ERSTWHILE FIRM VESTS IN THE LIMIT ED COMPANY. IT WAS OBSERVED THAT THERE IS A DIFFERENCE IN VESTING OF THE PROPERTY AND DISTRIBUTION OF THE PRO PERTY. IT WAS HELD THAT ON VESTING IN THE LIMITED COMPANY UND ER PART IX OF THE COMPANIES ACT, THE PROPERTIES VEST IN THE COMPANY AS THEY EXIST WHILE DISTRIBUTION OF PROPERT Y ON DISSOLUTION PRE-SUPPOSES DIVISION, REALIZATION, ENCASHMENT OF ASSETS AND APPROPRIATION OF THE REALI ZED AMOUNT AS PER THE PRIORITY AND THAT THIS DIFFERENCE IS VERY IMPORTANT. HAVING OBSERVED THUS, THE HONBLE HIGH C OURT HELD THAT THERE IS NO TRANSFER OF PROPERTY AND NO C APITAL GAINS ARISE FROM SUCH A TRANSACTION. THE HONBLE HI GH COURT WAS DEALING WITH THE CASE OF THE PARTNERSHIP FIRM WHILE IN THE CASE ON HAND, WE ARE DEALING WITH THE CASE OF THE COMPANY. IN THE CASE OF TEXSPIN, THE QUESTIONS CONSIDERED WERE - (1) WHETHER CAPITAL GAINS AROSE IN THE HANDS OF THE PARTNERSHIP FIRM ON CONVERSION OF THE FIRM INTO THE COMPANY, AND (2) WHETHER THE FIRM WAS ENTITLED TO DEPRECIATION O N THE ASSETS OWNED BY IT TILL THE DATE OF TRANSFER. 17. THE CASE ON HAND IS A REVERSE CASE. THE COMPANY IS CLAIMING THE DEPRECIATION ON THE VALUE O F THE ASSETS IN ITS BOOKS OF ACCOUNTS. THE CLAIM OF DEPRE CIATION IS ON TRADEMARKS WHICH ARE INTANGIBLE ASSETS AND DEPRECIATION THEREON IS ALLOWABLE U/S 32(1)(II) OF THE IT ACT. THE TWO CONDITIONS MENTIONED IN SEC. 32 ARE THA T THE ASSETS SHOULD BE OWNED BY THE ASSESSEE AND SHOULD H AVE ITA NOS.1530 & 1531/BANG/2016 PAGE 9 OF 11 BEEN USED FOR THE PURPOSES OF THE BUSINESS OR PROFE SSION OF THE ASSESSEE. THE SUB-CLAUSES THERETO ENUMERATE THE DEDUCTIONS ALLOWABLE U/S 32. SUB-CLAUSE (II) THEREO F PROVIDES FOR A DEDUCTION AT A PRESCRIBED PERCENTAGE OF THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS. 5 TH PROVISO THERETO PROVIDES THAT IN RESPECT OF CIRCUMSTANCES S UCH AS SUCCESSION, AMALGAMATION OR DEMERGER, THE AVERAGE DEDUCTION ON ACCOUNT OF DEPRECIATION ON TANGIBLE OR INTANGIBLE ASSETS SHALL NOT EXCEED, IN ANY PREVIOUS YEAR, THE DEDUCTION CALCULATED AT THE PRESCRIBED RATES AS IF THE SUCCESSION, AMALGAMATION OR DEMERGER HAS NOT TAKEN PLACE AND SUCH DEDUCTION SHALL BE APPORTIONED BETWE EN THE PREDECESSOR AND THE SUCCESSOR, OR THE AMALGAMAT ING COMPANY AND AMALGAMATED COMPANY OR THE DEMERGED COMPANY AND THE RESULTING COMPANY AS THE CASE MAY B E, IN THE RATIO OF DAYS FOR WHICH THE ASSETS WERE USED BY THEM. 18. IN ALL THE THREE CIRCUMSTANCES ABOVE, THE ERST WHILE COMPANY CEASES TO EXIST AND A NEW COMPANY COMES INT O EXISTENCE. IN THE CASE ON HAND ALSO, ON ACCOUNT OF CONVERSION, THE ERSTWHILE PARTNERSHIP FIRM CEASED T O EXIST WHILE THE COMPANY HAS COME INTO EXISTENCE. THEREFO RE, THE ASSETS COME TO VEST IN THE HANDS OF THE COMPANY AND THERE IS NO COST OF ASSETS TO THE COMPANY ON SUCH V ESTING. WHEN THE TRANSACTION ITSELF HAS BEEN TREATED TO BE NOT A TRANSFER, BUT IS AKIN TO SUCCESSION, IN OUR OPINION THE 5 TH PROVISO TO SUB-CLAUSE (II) OF SEC. 36(1) APPLIES AN D THE DEPRECIATION HAS TO BE CALCULATED AS IF THERE IS NO TRANSFER. 19. FURTHER, AS THERE IS NO TRANSFER, THERE IS NO COST TO THE ASSESSEE. DEPRECIATION IS ALLOWABLE ON THE WDV OF T HE ASSET AND WDV HAS BEEN DEFINED U/S 43(6) TO MEAN IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR , THE ACTUAL COST TO THE ASSESSEE. AS ACTUAL COST TO THE ASSESSEE WAS NIL, THE WD VALUE OF THE ASSETS IN THE HANDS OF T HE PREDECESSOR FIRM SHALL BE CONSIDERED FOR THE ALLOWA NCE OF DEPRECIATION. 20. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFE RE WITH THE ORDERS OF THE AUTHORITIES BELOW. 21. THE LEARNED COUNSEL FOR THE ASSESSEE HAD PLACE D RELIANCE UPON THE DECISION OF ITAT AT AHMEDABAD IN TH E CASE OF PRAKASH CHEMICAL AGENCIES PVT. LTD. REPORTED IN (2012) 136 ITD 222 (AHD) BUT WE FIND THAT IT IS THE CASE OF A TAKEOVER OF THE BUSINESS OF A PARTNERSHIP FIRM BY THE ASSESSEE COMPANY THEREIN WHEREAS IN THE CASE BEFORE US, ITA NOS.1530 & 1531/BANG/2016 PAGE 10 OF 11 IT IS THE CASE OF CONVERSION OF PARTNERSHIP FIRM IN TO A COMPANY. THEREFORE, THE SAID DECISION IS NOT APPLIC ABLE TO THE CASE ON HAND. 22. THE OTHER OBJECTION OF THE LEARNED COUNSEL FO R THE ASSESSEE IS THAT THE CONVERSION HAS TAKEN PLACE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 A ND HENCE IT CAN BE EXAMINED ONLY IN A.Y 2004-05 AND NOT IN SUBSEQUENT YEAR. WE ARE UNABLE TO ARGUE WITH THIS CONTENTION OF THE ASSESSEE. SUB-SEC(6) OF SEC. 43 D EFINES WRITTEN DOWN VALUE AND IT PROVIDES FOR BOTH THE ACQUISITION OF ASSETS DURING THE RELEVANT PREVIOUS YEAR AND ACQUISITION OF ASSETS BEFORE THE RELEVANT PREVIOUS YEAR AND BOTH THE CLAUSES MENTION ACTUAL COST TO THE ASSESS EE. IN THE SECOND CIRCUMSTANCE I.E WHERE THE ASSETS ARE AC QUIRED BEFORE THE PREVIOUS YEAR AS IN THE CASE OF THE ASSE SSEE BEFORE US, THE WDV SHALL BE THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THE INCOME-TAX ACT. THEREFORE, IT IS CLEAR THAT THE CLAI M OF DEPRECIATION CAN BE EXAMINED EVEN IN THE ASSESSMENT S YEARS SUBSEQUENT TO THE ASSESSMENT YEAR IN WHICH TH E SUCCESSION HAS TAKEN PLACE. THIS ARGUMENT IS ACCORD INGLY REJECTED. 23. THE OTHER OBJECTION OF THE ASSESSEE IS THAT T HOUGH ONLY THE AO IS ENTITLED TO INVOKE THE PROVISIONS OF EXPLANATION 3 TO SEC. 43(1) OF THE IT ACT, THE CIT(A) HAS INVOKED THE SAME WHICH IS IMPERMISSIBLE. ON PERUSAL OF THE ORDER OF THE CIT(A), WE FIND THAT HE HAS NOT INV OKED THE PROVISIONS OF EXPLANATION 3 TO SEC. 43(1) OF TH E IT ACT BUT HAS ONLY JUSTIFIED THE ACTION OF THE AO IN QUEST IONING THE CLAIM OF DEPRECIATION BY CITING THE PROVISION O F SEC. 43(1) AND EXPLANATION 3 THEREOF. THEREFORE, WE SEEN NO STRENGTH IN THIS ARGUMENT OF THE ASSESSEE. 24. FURTHER, U/S 251 OF THE IT ACT, THE POWERS OF T HE CIT(A) ARE CO-TERMINUS WITH THAT OF THE AO MEANING T HAT HE CAN DO WHAT THE AO COULD DO AND CAN ALSO DIRECT THE LATTER TO DO WHAT THE LATTER FAILED TO DO AS LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KANPUR COAL SYNDICATE (1964) 53 ITR 225 (SC). THEREFORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A) WHICH N EEDS INTERFERENCE. THEREFORE, THIS ARGUMENT OF THE ASSES SEE IS ALSO REJECTED. 25. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE FOR ALL THE ASSESSMENT YEARS ARE DISMISSED. ITA NOS.1530 & 1531/BANG/2016 PAGE 11 OF 11 9. RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE DEEM IT APPROPRIATE TO DISMISS THIS GROUND OF THE ASSESSEE AS WELL. 10. SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW IN THE EARLIER ASSESSMENT YEAR, WE FIND NO REASON TO TAKE A CONTRA RY VIEW IN THIS APPEAL. ACCORDINGLY, FOLLOWING THE ORDER OF TRIBUNAL FOR TH E EARLIER YEAR, WE DIRECT THE AO TO ALLOW DEPRECIATION FOR INTANGIBLE ASSETS. 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND THAT OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF APRIL, 2017. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 28 TH APRIL, 2017. / D ESAI S MURTHY / COPY TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.