DCIT, New Delhi V. M/s. Avantha Power & Infrastructure Ltd., New Delhi

ITA 1956/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86806 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MISHRA
• Assessee Lawyers: AKHIL MAHAJA
• Keywords: Depreciation; Valuation report
• Section: 92C; 32; 28

Judgement Text

ITA NO S . 1955 & 1956/ DEL/ 2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A , NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND H.S. SIDHU, JUDICIAL MEMBER I.T.A.NO S . 1955 & 1956 /DEL/201 3 A.Y RS . : 200 8 - 0 9 & 2009 - 10 DCIT, CIRCLE 2(1), ROOM NO. 398 - D, C.R. BUILDING, NEW DELHI VS. M/S AVANTHA POWER & INFRASTRUCTURE LTD., THAPAR HOUSE, 124, JANPATH, NEW DELHI 110 001 (PAN: AACCB7469B) (APPELLANT) (RESPONDENT) DEPARTMENT BY : S MT. A. MISHRA, CIT(DR) ASSESSEE BY : SH. AKHIL MAHAJA, CA DATE OF HEARING : 19 - 0 2 - 201 5 DATE OF ORDER : 20 - 0 2 - 201 5 ORDER PER H.S. SIDHU : J M THE REVENUE HAS FILED THE SE APPEALS AGAINST THE COMMON IMPUGNED ORDER DATED 04 / 1 /20 1 3 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - V , NEW DELHI . SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS IS COMMON, HENCE, WE ARE DISPOSING OF THE APPEALS BY THIS CONSOLIDATED ORDER FOR THE SAKE OF BREVITY, BY DEALING THE ITA NO. 1955/DEL/2013 (A.Y. 2008 - 09). 2. THE GROUNDS RAISED IN ITA NO. 19 55/DEL/2013 (A.Y. 2008 - 09) READ AS UNDER: - ITA NO S . 1955 & 1956/ DEL/ 2013 2 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 11,63,24,923/ - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION U/S. 32 OF THE I.T. ACT, 1961 BY INVOKING EXPLANATION 3 OF SE CTION 43(1) OF THE I.T. ACT, 1961. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 1956/DEL/ 2013 (A.Y. 2009 - 10) READ AS UNDER: - 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 11, 53 , 53 , 162 / - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION U/S. 32 OF THE I.T. ACT, 1961 BY INVOKING EXPLANATION 3 OF SECTION 4 3(1) OF THE I.T. ACT, 1961. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. THE FACTS NARRATED BY THE REVENUE IN BOTH THE APPEALS ARE NOT DISPUTED BY BOTH THE PARTIES, HENCE, NEED NOT TO REPEAT THE SAME HERE FOR THE SAKE OF BREVITY. THE ONLY ISSUE INVOLVED IN THE PRESENTS APPEALS ARE REGARDING THE DELETION THE ADDITION OF RS. 11,63,23,923/ - FOR (A.Y. 2008 - 09) AND RS. 11, 53,53,162/ - (FOR A.Y. 2009 - 10) MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION U/S. 32 OF THE I.T. ACT, 1961 BY INVOKING EXPLANATION 3 OF SECTION 43(1) OF THE I.T. ACT, 1961. ITA NO S . 1955 & 1956/ DEL/ 2013 3 5. AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE MADE A STATEMENT THAT THE ISSUE IN DISPUTE HAS ALREADY BEEN ADJUDICATED AND DECIDED IN ASSESSEE S FAVOR BY THE ITAT IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08 IN ITA NO. 3259/DEL/2010 TITLE BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED AND IN I TA NO. 4276/DEL/2010 (A.Y. 2007 - 08) DCIT VS. BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED VIDE ORDER DATED 9.11.2012. 6. LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT LD. CIT(A) IN THE IMPUGNED ORDER HAS ALSO DELETED THE ADDITION IN DISPUTE BY RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08 IN ITA NO. 3259/DEL/2010 TITLE BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED AND IN ITA NO. 4276/DEL/2010 (A.Y. 2007 - 08) DCIT VS. BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED VIDE ORDER DATED 9.11.2012, HENCE, HE REQUESTED THE ORDER OF THE LD. CIT(A) MAY BE UPHELD. 7. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PASSED BY THE AO. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDER PASSED BY THE LD. CIT(A) AND THE AFORESAID ORDER OF THE ITAT. WE FIND THAT LD. LD. CIT(A) HAS RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08 IN ITA NO. 3259/DEL/2010 TITLE BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED AND IN ITA NO. 4276/DEL/2010 (A.Y. 200 7 - 08) DCIT VS. BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED VIDE ORDER DATED 9.11.2012. WE ALSO FIND THAT IN THE ASSTT. YEAR 2007 - 08, AO HAS MADE SIMILAR ADDITION REGARDING DISALLOWANCE ITA NO S . 1955 & 1956/ DEL/ 2013 4 OF DEPRECIATION U/S. 32 OF THE I.T. ACT BY INVOKING THE EXPLANATION 3 OF SECTION 43(1) OF THE I.T. ACT, 1961 AND AGGRIEVED BY THE SAME, ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE ON THE ISSUE OF DEPRECIATION U/S. 32 AND ALLOWED THE DEPRECIA TION. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), REVENUE FILED AN APPEAL BEFORE THE ITAT, WHO VIDE ITS ORDER DATED 9.11.2012 AFFIRMED THE FINDING OF THE LD. CIT(A) ON THE DELETION OF DISALLOWANCE OF DEPRECATION MADE BY THE AO. WE FIND THAT THE LD. CIT(A) IN THE ASSTT. YEARS IN DISPUTE I.E. 2008 - 09 AND 2009 - 10 HAS ADJUDICATED THE ISSUE VIDE COMMON ORDER DATED 4.1.2013 AS UNDER: - 3. BASICALLY THE GROUNDS OF APPEAL PERTAIN TO (I) DISALLOWANCE OF LOAN PROCESSING FEE AND (II) DISALLOWANCE OF DEPRECIATION ON ASSETS ACQUIRED. AS PER THE APPELLANT, SIMILAR ISSUE WAS INVOLVED IN THE AY 2007 - 08 AND THE CIT(A) HAD ALLOWED THE DEPRECIATION, BUT HAD ALLOWED THE CLAIM ON ACCOUNT OF LOAN PROCESSING FEE ON PROPORTIONATE BASIS I.E. 1/10TH OF THE LOAN PROCESSING FEE EACH YEAR. BOTH THE DEPARTMENT AND THE APPELLANT WENT IN APPEAL BEFORE THE ITAT AND THE ITAT HAS PASSED A DETAILED ORDER DATED 9.11.20 12.THE ITAT HAS CONFIRMED THE FINDING OF THE CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO AGAINST WHICH THE DEPARTMENT HAD GONE IN APPEAL; HOWEVER, IN REGARD TO LOAN PROCESSING FEE IT HAS REVERSED THE ORDER OF CIT(A) AND HAS HELD THE EX PENDITURE AS CAPITAL IN NATURE, HOWEVER IT HAS DIRECTED THAT THE LOAN PROCESSING FEE BEING CAPITAL IN NATURE, DEPRECIATION SHOULD BE ALLOWED THEREON. ITA NO S . 1955 & 1956/ DEL/ 2013 5 3.1 ON THE ISSUE OF DEPRECIATION, THE RELEVANT PARAS - 2.17 TO 2.23 OF CIT(A)'S ORDER DATED 11.6.2010 FOR A Y 2007 - 08 ARE REPRODUCED AS UNDER: - 2.17 THE SUBMISSION OF THE APPELLANT HAS BEEN CONSIDERED. IT IS ADMITTED POSITION UNDER THE LAW THAT THE 'ACTUAL COST' MEANS ARM'S LENGTH VALUE OR REAL VALUE OR WORTH OF ASSETS TRANSFERRED. A. A. HAVING CITED NO GOOD G ROUND FOR NOT ACCEPTING THE COST OF THE ASSETS IN QUESTION AS VALUED BY REGISTERED VALUER. MOREOVER, HE HAS NOT MADE ANY ATTEMPT TO UNDERTAKE THE EXERCISE OF FINDING OUT THE ACTUAL COST OF SAID ASSETS ACQUIRED BY APPELLANT, AS BECAUSE MAIN PURPOSE OF EXPLA NATION 3 IS NOT RECORDING THE SATISFACTION BUT TO DETERMINE ACTUAL COST. IN THE APPELLANT'S CASE, IMPUGNED TRANSFER OF ASSETS HAS NOT BEEN MADE BY A HOLDING COMPANY TO ITS SUBSIDIARY AS REFERRED TO BY THE A.O. IN THE CASE OF M/S DALMIA CERAMIC INDUSTRIAL L TD. VS CIT [277 ITR 219 (DEL)] ARRANGEMENT OF FUND AND FURNISHING SECURITY THEREOF TO THE LENDING BANK DO NOT FORTIFY THE CASE OF THE APPELLANT FOR THE PURPOSE OF APPLICABILITY OF EXPLANATION 3 OF SECTION 43 (1) OF THE ACT. MOREOVER, PRICE PAID BY THE APP ELLANT COMPANY TO THE TRANSFEROR COMPANY WAS DULY DISCLOSED BY THE TRANSFEROR COMPANY AND RESULTANT TAX ON CAPITAL GAINS FOR THE 'SLUMP SALE' HAS ALSO BEEN PAID. THE A O LACKS TECHNICAL COMPETENCY TO VALUE THE PLANT & MACHINERY TRANSFERRED FROM TRANSFEROR COMPANY TO TRANSFEREE COMPANY. THOUGH THERE ARE THREE VALUERS ITA NO S . 1955 & 1956/ DEL/ 2013 6 GIVING THE REPORTS AND FINALLY IT IS APPROVED BY HIGH COURTS OF DELHI AND BOMBAY, WE SHOULD NOT DOUBT ON VALUATION OF ASSETS. IF AT ALL ANY DOUBT PERSISTS, AN OPINION CAN BE OBTAINED FROM DEPART MENTAL VALUERS OF I. T. DEPARTMENT WHO ARE APPOINTED FOR VALUING PLANT AND MACHINERY. AFTER GETTING APPROVAL FROM HIGH COURT OF DELHI, THE TRANSFEREE HAD PA I D, THE T AX ON LONG TERM CAPITAL GAINS THAT AROSE ON TRANSFER OF SUCH ASSETS. WHEN THERE IS TRANSFE R OF OLD ASSETS, VALUATION OF SUCH ASSETS ON TRANSFER MAY ARISE DUE TO ESCALATION OF PRESENT VALUE OF SUCH ASSETS ON TRANSFER. WE CANNOT TAX THE TRANSFEROR AND TRANSFEREE COMPANY TWICE ON SAME TRANSACTION BY DISALLOWING DEPRECIATION. WHEN THE TRANSFEREE CO MPANY IS PAYING HIGHER AMOUNT OF RS.235 CRORES (AND NOT 86 CRORES), THEN HE SHOULD GET DEPRECIATION ON RS.235 CRORES ONLY. THE TRANSFEROR COMPANY HAD PAID LONG TERM CAPITAL GAIN ON 235 CRORES AFTER HIGH COURT'S ORDER OF TRANSFER. 2.18 DE FINITION OF 'DEMER GER' INCLUSIVE OF ITS CONDITIONALITY FOR APPLICATION AS PER SECTION 2(19AA) OF THE INCOME TAX ACT AS UNDER: - (19AA)'DEMERGER', IN RELATION TO COMPANIES, MEANS THE TRANSFER, PURSUANT TO A SCHEME OF ARRANGEMENT UNDER SECTIONS 391 TO 39479 OF THE COMPANIES A CT, 1956 (1 OF 1956), BY A DEMERGED COMPANY OF ITS ONE OR MORE UNDERTAKINGS TO ANY RESULTING COMPANY IN SUCH A MANNER THAT - ITA NO S . 1955 & 1956/ DEL/ 2013 7 (I)A THE PROPERTY OF THE UNDERTAKING, BEING TRANSFERRED BY THE DEMERGED COMPANY, IMMEDIATELY BEFORE THE DEMERGER, BECOMES THE PROPE RTY OF THE RESULTING COMPANY BY VIRTUE OF THE DEMERGER; (II)ALL THE LIABILITIES RELATABLE TO THE UNDERTAKING, BEING TRANSFERRED BY THE DEMERGED COMPANY, IMMEDIATELY BEFORE THE DEMERGER, BECOME THE LIABILITIES OF THE RESULTING COMPANY BY VIRTUE OF THE DEME RGER; (III)THE PROPERTY AND THE LIABILITIES OF THE UNDERTAKING OR UNDERTAKINGS BEING TRANSFERRED BY THE DEMERGED COMPANY ARE TRANSFERRED AT VALUES APPEARING IN ITS BOOKS OF ACCOUNT IMMEDIATELY BEFORE THE DEMERGER; (IV)THE RESULTING COMPANY ISSUES, IN CON SIDERATION OF THE DEMERGER, ITS SHARES TO THE SHAREHOLDERS OF THE DEMERGED COMPANY ON A PROPORTIONATE BASIS; (V)THE SHAREHOLDERS HOLDING NOT LESS THAN THREE - FOURTHS IN VALUE OF THE SHARES IN THE DEMERGED COMPANY (OTHER THAN SHARES ALREADY HELD THEREIN IM MEDIATELY BEFORE THE DEMERGER, OR BY A NOMINEE FOR, THE RESULTING COMPANY OR, ITS SUBSIDIARY) BECOME SHARE - HOLDERS OF THE RESULTING CO MPANY OR COMPANIES BY VIRTUE OF THE DEMERGER, OTHERWISE THAN AS A RESULT OF THE ACQUISITION OF THE PROPERTY OR ASSETS OF THE DEMERGED COMPANY OR ANY UNDERTAKING THEREOF BY THE RESULTING COMPANY; (VI) THE TRANSFER OF THE UNDERTAKING IS ON A GOING CONCERN BASIS; ITA NO S . 1955 & 1956/ DEL/ 2013 8 (VI I) THE DEMERGER IS IN ACCORDANCE WITH THE CONDITIONS, IF ANY, NOTIFIED UNDER SUB - SECTION (5) OF SECTION 72A B Y THE CENTRE! GOVERNMENT IN THIS BEHALF. 2.19 AS PER SECTI O N 2(42C) 'SLUMP SALE' MEANS THE TRANSFER OF ONE OR MORE UNDERTAKINGS AS A RESULT OF THE SALE FOR A LUMP SUM CONSIDERATION WITHOUT VALUES BEING ASSIGNED TO THE INDIVIDUAL ASSETS AND LIABILITI ES IN SUCH SALES. EXPLN.1 - FOR THE PURPOSES OF THIS CLAUSE, 'UNDERTAKING' SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION 1 TO CLAUSE(19A A ). EXPLN.2 - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECL ARED THAT THE DETERMINATION OF THE VALUE OF AN ASSET OR LIABILI TY FOR THE SOLE PURPOSE OF PAYMENT OF STAMP DUTY, REGISTRATION FEES OR OTHER SIMILAR TAXES OR FEES SHALL NOT BE REGARDED AS ASSIGNMENT OF VALUES TO INDIVIDUAL ASSETS OR LIABILITIES. 2.20 THE AO HAS TREATED THAT THE TRANSFER OF UNC1ERTAKING AS DEMERQER AN D APPLIED EXP L ANATION 3 OF SECTION 43(1) OF THE ACT EVEN WHEN ALL THE CONDITIONS LAID DOWN UNDER THE I. T. ACT WERE NOT FULFILLED IN THI S TRANSFER OF UNDERTAKING. 2.21 APIL IS A SEPARATE COMPANY HAVING DIF FERENT SHAREHOLDERS AND DIRECTORS FROM THE TRAN SFEROR COMPANY I.E. M/S BALLARPUR INDUSTRIES LTD. CONDITIONS STIPULATED IN SECTION 2(19AA) ARE NOT FULFILLED IN TRANSACTION OF TR ANSFER OF THE UNDERTAKING BY THE TRANSFEROR COMPANY THEREFORE, THE TRANSFER OF ITA NO S . 1955 & 1956/ DEL/ 2013 9 UNDERTAKING OF POWER G ENER A TION BUSINESS IS NOT A DEMERGER AS PER IT ACT A S STIPULATED U/S 2(19AA) OF T HE ACT. 2.22 THE ASSESSEE HAD ACCOUNTED AND T REATED THE TRANSFER OF THE AFORESAID UNDERTAKING ON A SLUMP SALE BASIS. THERE HAS BEEN A TRANSFER OF AN UNDERTAKING WIT H OUT ASS I GNING THE VA L UES TO INDIVIDUAL ASSETS AND LIA B ILIT IES. THE CONSIDER A TION OF RS. 235 CRORES IS FOR THE ENTIRE U NDERTAKING OF POWER GENERATION BUSINESS TAKEN OVER BY THE ASSESSEE COMPANY FROM M/S BALLARPUR INDUSTRIES LTD. 2.23 IN VIEW OF THE ABOVE, I AM OF THE CONSIDER ED VIEW THAT THE APPELLANT S CASE DOES NOT FALL WITHIN THE AMBIT OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. ACCORDINGLY, DISALLOWANCE MADE IN THE ORDER IN RESPECT OF DEPRECIATION RS. 11,75,03,529/ - IS NOT SUSTAINABLE AND HENCE DELETED. ACCORDINGLY, A.O. IS DIRECTED TO ALLOW DEPRECIATION ON ACTUAL COST OF RS.235 CRORE AS ADOPTED ON THE BASIS OF VALUATION REPORTS BY THE VALUERS AND DECLARED IN THE SCHEME APPROVED BY THE COURT AND ALSO COMPUTED BY THE AUDITOR IN THE TAX AUDIT REPORT AS PER PROVISIONS OF SEC TION 32 OF THE ACT. 11 THE ABOVE FINDING OF THE CIT(A) HAS BEEN CONFIRMED BY THE ITAT AFTER APPRECIATING THE FACTS AND LAW OF THEIR OWN. THE RELEVANT PARAS 35 TO 46 OF THE ORDER OF THE ITAT ARE REPRODUCED AS UNDER: - '35. WE HAVE CONSIDERED THE RIVAL SUBM ISSIONS AND HAVE PERUSED THE RECORD OF THE CASE. ITA NO S . 1955 & 1956/ DEL/ 2013 10 36. AT THE OUTSET, WE MAY OBSERVE THAT AO HAS NOT CONSIDERED THE ENTIRE SCHEME AS DEMERGER UNDER THE INCOME - TAX ACT AS CONTEMPLATED U/S 2(19AA) OF THE INCOME - TAX ACT. THEREFORE, WE DO NOT CONSIDER IT NECESS ARY TO EXAMINE THE OBSERVATIONS OF AO, AND ID. CIT(A) AND THE SUBMISSIONS OF BOTH THE PARTIES ON THIS COUNT AS IT WOULD ONLY BE OF ACADEMIC INTEREST. THIS IS EVIDENT FROM THE FACT THAT AO HAS INVOKED EXPLANATION 3 TO SEC. 43(1) AND NOT EXPLANATION 7A TO SE C. 43(1). FURTHER THE CONTENTION OF ASSESSEE THAT TRANSFEROR COMPANY HAD ALSO PAID LONG TERM CAPITAL GAIN TAX ON THE SALE CONSIDERATION IS ALSO NOT OF MUCH SIGNIFICANCE BECAUSE TAX LIABILITY IS TO BE DETERMINED QUA ASSESSEE. THEREFORE) THE MAIN ISSUE FOR O UR CONSIDERATION IS WHETHER AO WAS JUSTIFIED IN INVOKING EXPLANATION 3 TO SEC.43(1) BY HOLDING THAT THE ENTIRE PURPOSE OF THIS SCHEME WAS REDUCTION OF TAX LIABILITY BY CLAIMING HIGHER DEPRECIATION IN RESPECT OF THOSE ASSETS WHICH WERE EARLIER USED BY TRANS FEROR COMPANY BY ESCALATING THE CASE OF THE ASSETS. EXPLANATION 3 HAS BEEN INCORPORATED IN SEC. 43(1) TO COUNTER THE ATTEMPTS OF ASSESSEE TO CLAIM HIGHER DEPRECIATION BY PURPORTING TO PURCHASE ASSETS AT MORE THAN THEIR TRUE OR REAL COST. IT IS FUNDAMENTAL PRINCIPLE THAT DEPARTMENT CANNOT QUESTION THE WISDOM OF ASSESSEE IN CARRYING OUT ITS BUSINESS OPERATIONS. DEPARTMENT CANNOT DICTATE AS TO HOW THE ASSESSEE SHOULD CONDUCT ITS BUSINESS. HOWEVER, L EGISLATURE HAS MADE SPECIFIC PROVISIONS IN THE INCOME TAX ACT WHEN DEPARTMENT CAN DEPART FROM THIS FUNDAMENTAL PRI NCIPLE ITA NO S . 1955 & 1956/ DEL/ 2013 11 AND IGNORE THE APPARENT STATE OF AFFAIRS AND PEACE THE SMOKY SCREEN CREATED BY ASSESSEE IN THE TRANSACTION TO FIN D OUT THE TRUE INTENTION. THESE SECTIONS PROVIDE CIRCUMSTANCES IN WHICH DEPARTMENT CAN IMPUTE ITS JUDGMENT TO THE ASSESSEE'S DECISION. T HE RELEVANT PROVISIONS ARE TO BE FOUND IN SECTION 40A(2), EXPLANATION 3 TO SEC. 43(1), SECTION 92C ETC. BUT BEFORE THESE PROVISIONS CAN BE INVOKED, LEGISLATURE HAS REQUIRED THE AO TO ACQUIRE NECESSARY SATISFACTION IN THIS REGARD WHICH OBVIOUSLY HAS TO BE A CQUIRED JUDICIOUSLY AND NOT ARBITRARILY. THE AO SHOULD DEMONSTRATE THAT HIS SATISFACTION WAS RATIONAL AND BASED ON RELEVANT FACTORS. EXPLANATION 3 TO SECTION 43(1) READS AS UNDER: - 43. 'IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWI SE REQUIRES - (1) 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREO F , IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. EXPLANATION 3 - WHERE, BEFORE THE DATE OF AC QUISITION BY THE ASSESSEE, THE A SSETS WERE AT ANY TIME USED BY ANY OTHER PERSON FOR THE PURPOSES OF HIS BUSINESS OR PRO F ESSION AND THE AO IS SATISFIED THAT THE M A IN PURPOSE OF THE TR ANSFER OF SUCH ASSETS, DIRECTLY OR INDIRECTLY TO THE A SS E ESSE E , 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 AO MAY, WITH ITA NO S . 1955 & 1956/ DEL/ 2013 12 THE PREVIOUS APPROVAL OF THE JOINT COMMISSIONER, DETERMINE HAVING REGARD TO A LL THE CIRCUMSTANCES OF THE CASE. THUS, T H E BASIC INGREDIENTS OF EXPLANAT I ON 3 ARE AS UNDER: - I) AN ASSET WAS ALREADY IN USE IN A BUSINESS IN THE HANDS ET ONE PERSONS: II) THAT PERSON TRANSFERS THE ASSET TO ASSESSEE; III) THE AO IS SATISFIED THAT THE MAIN PURPOSE OF TRANSFER RJ( SUCH ASSETS WAS THE REDUCTION OF LIABILITY TO IN COME - TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST; IV) THE AO CAN REFUSE TO ACCEPT THE SALE PRICE AS THE ACTUAL COST TO THE PURCHASER (ASSESSEE) IN THE PURCHA SERS ASSESSMENTS. 37. THE LEGISLATURE HAS PREFIXED THE WORD 'ACTUAL' TO THE WORD 'COST' WHICH CLEARLY SIGNIFIES THAT EMPHASIS IS ON THE REALITY AND GENUINENESS OF THE COST SO AS TO EXCLUDE COLLUSIVE, INFLATED, DEFLATED OR FICTITIOUS COST. AS ALREADY POINT ED OUT THAT THE AD IS REQUIRED TO JUDICIOUSLY ACQUIRE THE NECESSARY SATISFACTION REGARDING THE OBJECT OF TRANSFER. IT IS NOT TO BE UNDERSTOOD THAT EVERY CASE WHEREVER ASSESSEE ACQUIRES A USED ASSET FROM OTHER PERSON THEN THE OBJECT WOULD ONLY BE REDUCTION OF TAX LIABILITY. THERE MAY BE GENUINE CASES ALSO WHERE THE ASSET HAS APPRECIATED IN VALUE SINCE ITS ORIGINAL PURCHASE AND CONSEQUENTLY, THE MARKET VALUE ON THE DATE OF THE SALE IS GREATER THAN WRITTEN DOWN ITA NO S . 1955 & 1956/ DEL/ 2013 13 VALUE IN THE AD'S CHART. IN THE ABSENCE OF ANY FI NDING, THAT THE MAIN PURPOSE OF THE TRANSFER IS TO REDUCE THE TAX LIABILITY WITH REFERENCE TO ENHANCED COST, IT IS NOT PERMISSIBLE TO THE A O TO REJECT THE COST PAID FOR THE TRANSFER. THE AD CANNOT SUBSTITUTE HIS OWN ESTIMATE OF THE VALUE REJECTING THE ASSE SSEE'S ESTIMATE AS WAS HELD IN BY HON'BLE SUPREME COURT IN JOYTA COAL COMPANY LTD. VS. CIT , 36 ITR 521. THUS, WHERE AT THE TIME OF PARTITION OF A FAMILY, AS WAS THE CASE IN KALU RAM GOVIND RAM VS. CIT, 57 ITR 335, THE ASSETS WERE ALLOTTED AMONG THE MEMBERS AT A VALUATION ARRIVED AT IN A REASONABLE MANNER, THERE BEING NO ALLEGATION OF INFLATED COST BY REASON OF FRAUD/ COLLUSION, SUBTERFUGE, DEVISE OR FALSE TRANSACTION MADE WITH AN ULTERIOR PURPOSE, THE DEPARTMENT WAS HELD TO BE PRECLUDED FROM GOING BEHIND TH E AGREEMENT BETWEEN THE PURCHASER AND THE SELLER IN DETERMINING THE PURCHASE PRICE. THE THRESH HOLD CONDITION IS THAT THE TRANSFER SHOULD BE WITH INTENT TO GET THE BENEFIT OF ENHANCED VALUE OF ASSET. THEREFORE, BEFORE INVOKING EXPLANATION 3, THE A O IS REQU IRED TO RECORD HIS SATISFACTION THAT ENTIRE TRANSACTION WAS UNDERTAKEN WITH A VIEW TO REDUCE THE TAX LIABILITY BY CLAIMING HIGHER DEPRECIATION. BEFORE WE EMBARK UPON FOR DETAILED DISCUSSION REGARDING ACTUAL COST TO THE ASSESSEE IN TERMS OF EXPLANATION 3, W E FIRST DECIDE SOME OBJECTIONS OF BOTH THE SIDES. THE ASSESSEE'S OBJECTION IS THAT AO HAS NOT RECORDED HIS REQUISITE SATISFACTION FOR INVOKING EXPLANATION 3 : WE ARE NOT IN AGREEMENT WITH ID. SR. COUNSEL'S ARGUMENT , BECAUSE AS RIGHTLY POINTED OUT BY ID. D R , A HOLISTIC VIEW IS TO BE TAKEN. THE ENTIRE ITA NO S . 1955 & 1956/ DEL/ 2013 14 DIS CUSSION BY A O PROCEEDS ON THE PREMISE THAT THE ASSESSEE TRYING TO CLAIM HIGHER DEPRECIATION ON ENHANCED COST. THE NEXT OBJECTION OF ID. SR. COUNSEL IS THAT AO DID NOT DETERMINE THE ACTUAL COST AS REQUIRED IN EXPLANATION 3. WE ARE NOT IN AGREEMENT WITH THIS ARGUMENT ALSO OF ID. SR. COUNSEL BECAUSE, AS RIGHTLY DEMONSTRATED BY ID. OR, AO HAD MADE ALL OUT EFFORTS TO FIND OUT THE ACTUAL COST. WE DO NOT FIND ANY SUBSTANCE IN THIS PLEA OF THE ASSESSEE BECAUSE AO HAD TAKEN INTO CONSIDERATION DIFFERENT VALUATION REPORTS AND WOV OF ASSETS BEFORE ARRIVING AT THE CONCLUSION THAT W D V AS PER INCOME - TAX RECORDS WAS THE ACTUAL COST OF ASSETS. HE HAD ALSO RAISED THE QUERIES WITH REGARD TO DETERMINATION OF ACTUAL COST OF THE SA ID ASSETS AND GATHERED INFORMATION FROM THE TRANSFEROR COMPANY BY ISSUING NOTICES U/S 133(6). WE ARE ALSO IN AGREEMENT WITH ID. OR THAT VALUE APPROVED BY THE HON'BLE HIGH COURT OF DELHI & BOMBAY WAS NOT BINDING ON TAX AUTHORITIES BECAUSE THE HON'BLE HIGH C OURT HAD NOT ADJUDICATED THE ISSUE OF ACTUAL COST OF THE ASSETS AS PER THE INCOME - TAX ACT. HOWEVER, THIS HAD PERSUASIVE VALUE IN DETERMINING THE ACTUAL COST OF ASSETS. THE THIRD ARGUMENT IS IN REGARD TO EFFECTIVE DATE OF TRANSFER. WE ARE IN AGREEMENT WITH THE ID. COUNSEL FOR THE ASSESSEE THAT THE EFFECTIVE DATE, AS PER THE SCHEME APPROVED BY THE HON'BLE HIGH COURT, WAS 01/04/06 IN VIEW OF THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF MARSHAL! SONS, 223 ITR 809 AND THE ASSESSEE COMPANY OBTAINED THE LO AN AGAINST THE ASSETS ACQUIRED BY IT FROM BANK IN JUNE, 2006. FURTHER THERE IS NO QUARREL WITH THE ITA NO S . 1955 & 1956/ DEL/ 2013 15 PROPOSITION OF ID. OR THAT IN CERTAIN CIRCUMSTANCES W D V OF ASSETS MAY CONSTITUTE ACTUAL COST TO THE ASSESSEE. HAVING CONSIDERED THESE ASPECTS, NOW WE PROCEE D TO DECIDE THE MAIN ISSUE WHICH IS WHAT WAS THE ACTUAL COST TO THE ASSESSEE AND CONSEQUENTLY WHETHER AO WAS JUSTIFIED IN INVOKING THE EXPLANATION 3 TO SEC. 43(1). IN THIS CONTEXT WE HAVE TO FIND OUT THE REAL VALUE OF ASSETS ACQUIRED BY THE ASSESSEE. IN TH IS REGARD THE FIRST ASPECT TO BE TAKEN INTO CONSIDERATION IS THE APPROVAL OF THE HON'BLE HIGH COURT TO THE SCHEME OF ARRANGEMENT AND DEMERGER U/S 391 TO 394 OF THE COMPANIES ACT. SECTION 391 OF THE COMPANIES ACT EMPOWERS THE COURT TO SANCTION THE SCHEME. S ECTION 392 EMPOWERS THE COURT TO SUPERVISE THE CARRYING OUT OF THE SCHEME OR TO MODIFY THE SAME AS IT DEEMS FIT. SECTION 3(94) EMPOWERS THE COURT EITHER THROUGH THE ORDER SANCTIONING THE SCHEME OR BY A SUBSEQUENT ORDER TO MAKE PROVISIONS FOR CERTAIN MATTER S INCLUDING INCIDENTAL, CONSEQUENTIAL AND SUPPLEMENTAL MATTERS AS NECESSARY TO SECURE THAT THE RECONSTRUCTION OR AMALGAMATION IS FULLY AND EFFECTIVELY CARRIED OUT. IN EXERCISING ITS DISCRETION TO SANCTION THE SCHEME, THE COURT CONSIDERS, FIRSTLY WHETHER TH E STATUTORY PROVISIONS HAVE BEEN FULFILLED; SECONDLY, WHETHER THE CLASSES WERE FAIRLY REPRESENTED BY THOSE WHO ATTENDED THE MEETING; THIRDLY WHETHER THE STATUTORY MAJORITY WAS ACTING BONAFIDE; AND FOURTHLY, WHETHER THE SCHEME IS SUCH AS 'A MAN OF BUSINESS' WOULD REASONABLY APPROVE. ITA NO S . 1955 & 1956/ DEL/ 2013 16 FOLLOWING PRINCIPLES HAVE BEEN LAID DOWN IN THE CASE OF MIHEER H.MAFATLA L VS. MAFATLAL INDUSTRIES LTD. (1996) 87 COMP. CASES 792: 1. THE REQUISITE STATUTORY PROCEDURE FOR SUPPORTING THE SCHEME HAS BEEN COMPLIED WITH AND THAT TH E REQUISITE MEETINGS HAVE BEEN HELD; 2. THE SCHEME IS BACKED UP BY THE REQUISITE MAJORITY VOTE AS REQUIRED; 3. AT THE MEETING REQUISITE CLASS PERSONS HAD THE RELEVANT MATERIAL TO ENABLE THEM ARRIVE AT AN INFORMED DECISION FOR APPROVING THE SCHEME. THE MAJORITY DECISION OF THE CONCERNED CLASS IS JUST AND FAIR TO THE CLASS AS A WHOLE SO AS TO LEGITIMATELY BLIND EVEN THE DISSENTING MEMBERS OF THAT CLASS. 4. NECESSARY MATERIAL IS PLACED BEFORE THE VOTERS AT THE MEETINGS CONCERNED; 5. THE REQUISITE MATERIAL IS PLACED BEFORE THE COURT AND THE COURT IS SATISFIED ABOUT THE SAME; 6. THE PROPOSED SCHEME IS FOUND NOT TO BE VIOLATIVE OF ANY PROVISION OF LAW AND IS NOT CONTRARY TO PUBLIC POLICY. FOR ASCERTAINING THE REAL PURPOSE UNDERLYING THE SCHEME WITH A VIEW TO BE SETISTIED ON THIS ASPECT, THE COURT, IF NECESSARY, CAN PIERCE THE VEIL OF APPARENT CORPORATE PURPOSE UNDERLYIN G THE SCHEME AND CAN JUDICIOUSLY X - R AY THE SAME; 7 . THE, REQUISITE CLASS ACTED IN BONA FIDE AND IN GOOD FAITH AND DID NOT COERCE THE MINORITY; ITA NO S . 1955 & 1956/ DEL/ 2013 17 8 . TH E S CHEME AS A WHOLE IS JUST, FAIR AND REASONABLE FROM THE POINT OF VIEW OF PRUDENT MEN OF BUSINESS TAKIN G A COMMERCIAL DECISION BENEFICIAL TO THE CLASS REPRESENTED BY THEM FOR WHOM [HE SCHEME IS MEANT; AND 9. ONCE THE AFORESAID BROAD PARAMETERS ARE FOUND TO HAVE BEEN MET, THE COURT WILL HAVE NO FURTHER JURISDICTION TO SIT IN APPEAL OVER THE COMMERCIA L WISDO M OF THE MAJORITY OF THE CLASS OF PERSONS WHO WITH THEIR OPEN EYES HAVE GIVEN THEIR APPROVAL TO THE SCHEME EVEN IF IN THE VIEW OF THE COURT THERE WOULD BE A BETTER SCHE ME FOR THE COMP A NY AND ITS MEMBERS OR CREDITORS. 38. THEREFORE, IN CONTEXT TO PRESENT PROCEEDINGS, THE EFFECT OF ORDER OF HON'BLE DELHI H IGH COURT IS TO BE CONSIDERED KEEPING IN VIEW THE AFOREMENTIONED ASPECTS. WE FIND THAT HON'BLE DELHI HIGH COURT WHILE SANCTIONING THE SCHEME HAS OBSERVED AS UNDER: - 'DEPARTMENT OF COMPANY AFF AIRS, NOID A, ON BEHALF OF CENTRAL GOVERNMENT WHEREBY HE RAISER} THREE OBJECTIONS; THE FIRST OBJECTION IS TH A T BY THE PROPOSED SCHEME OF A RR A N G EMENT/DEMER G ER, THE TRANSFEREE CO M PANY IS LIABLE TO P AY RS. 235 CRORES AS CONSIDERATION FOR TR A NS F ER OF 'TRANSFERRED U NDERT AKING OF THE TRANSFEROR COMPANY. HE SUBMITTED THAT S HARE SHOULD HAVE BEEN ALLOTTED TO THE SHAREHOLDERS OF THE TRANSFEROR COMPANY, INSTEAD OF PAYING CONSIDERATION OF RS. 235 CRORES TO THE TRANSFEROR COMPANY AND THIS IS ITA NO S . 1955 & 1956/ DEL/ 2013 18 PRIME FACIE AGAINST THE INTEREST OF SHAREHOLDERS OF THE TRANSFEROR CO MPANY. THE COURT OBSERVED THAT MERE LY BECAUSE CONSIDERATION IS BEING PAID TO THE TRANSFEROR COMPANY, IT CANNOT BE PRESUMED THAT THE SCHEME AS SUCH I S CONTRARY TO PUB L IC INTEREST OR AGAINST THE I NTEREST O F SHAREHOLDERS OF THE TRANSFEROR COMPANY. UNDER NO RMAL CIRCUMSTANCES, THE TR ANSFEROR COMPANY COULD HAVE ALWAYS TRANSFERRED/SOLE! ANY OF ITS AS SETS F OR CONSIDERATION TO THE THIRD PARTY. THE COURT FURTHER OBSERVED THAT THE SALE CO NSID ER A TION AS FIX ED IS BASED UPON INDEPENDENT JUD GE MENT OF TWO VALUERS, NAMELY, M/ S SPB PRODUC TS AND CONSULTANCY LIMITED, CHENNAI AND M/S INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD., NEW DELHI. THE REGIONAL DIRECTOR NOWHERE STATED OR E V EN CONTENDED THAT THE SALE C ONSIDERATION SO FIXED IS INADEQUATE AND DOES NOT REPRESENT THE MARKET VALUE OF TRANSFERRED UNDERTAKING - 1 . THE COURT DID NOT FIND ANY MERIT IN THE SAID OBJECTION AND REJECTED THE SAME. THE SECOND OBJECTION IS THAT THERE IS NO OBJECT CLAUSE OF THE SCHEME A ND THEREFORE, THE PURPOSE AND BENEFITS UNDER THE SCHEME AS PROPOSED MAY BE ASCERTAINED. THE COURT OBSERVED THAT THE TRANSFEROR COMPANY IS BEING SPLIT INTO THREE PARTS AND TRANSFERRED UNDERTAKING NO. 1 I.E. (POWER DIVISION) IS BEING TRANSFERRED TO THE TRANS FEREE COMPANY FOR A SUM OF RS. 235 CRORES. COURT DID NOT FIND ANY MERIT IN THIS OBJECTION ALSO AND REJECTED THE SAME. THE THIRD OBJECTION IS IN RESPECT OF THE ARTICLES AND MEMORANDUM OF ASSOCIATION OF THE TRANSFEREE COMPANY NO. 2 AND THE PROPOSED SCHEME ITA NO S . 1955 & 1956/ DEL/ 2013 19 UN DER WHICH TRANSFERRED UNDERTAKING NO. 2 I.E. (REAL ESTATE DIVISION) IS TO BE TRANSFERRED TO THE TRANSFEREE COMPANY NO. 2. THE COURT ORDERED THAT IT NEED NOT EXAMINE THIS ASPECT AS THE MUMBAI HIGH COURT HAS ALREADY GRANTED SANCTION TO THE SCHEME OF ARRANGEM ENT/DEMERGER IN THE CASE OF THE TRANSFEREE COMPANY NO. 2; AND THERE BEING NO INVESTIGATION PROCEEDINGS PENDING IN RELATION TO THE PETITIONER COMPANY U/S 235 TO 251 OF THE COMPANIES ACT, 1956. THE SCHEME OF ARRANGEMENT/DEMERGER IN RESPECT OF TRANSFEROR COMP ANY AND TRANSFEREE COMPANY NO. 2 HAS ALREADY BEEN SANCTIONED BY HIGH COURT OF JUDICATURE AT BOMBAY, NAGPUR VIDE ORDER DT. 25/4/06. 39. THUS, IT CANNOT BE DENIED THAT THE APPROVAL GRANTED BY THE HON'BLE DELHI HIGH COURT HAD PERSUASIVE VALUE FOR DECIDING THE ACTUAL COST OF ASSETS TO THE ASSESSEE. IT COULD NOT BE IGNORED PARTICULARLY BECAUSE H ON'BLE COURT EXPRESSLY CONSIDERS THE BONAFIDE OF THE ENTIRE SCHEME. HOWEVER, THIS IS NOT BINDING ON INCOME - TAX AUTHORITIES WHILE CONSIDERING THE ACTUAL COST AS CONTEMPLATED IN EXPLANATION 3 TO SECTION 43(1) 40. THE NEXT ASPECT TO BE CONSIDERED IS THE OBJECT WITH WHICH BILT HIVED OFF ITS POWER DIVISION TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY WAS SET UP TO SPEARHEAD THE POWER SECTOR INITIATIVES OF THE AVANTH A POWER & INFRASTRUCTURE GROUP. THE OBJECTIVE OF DEMERGER OF THE POWER ASSET OF BA LLAR PUR INDUSTRIES LTD. WAS TO CREATE PLATFORM, WHEREIN THE COMPANY COULD UNDERTAKE LARGER PO WER PROJECTS. THE COMPANY'S PLANS ITA NO S . 1955 & 1956/ DEL/ 2013 20 WERE TO EXPAND THEIR G ENERATION CAPACITY AND DEVELOPMENT EFFORTS IN ORDER TO CAP ITALIZE ON THE PREVAILING AND FORECEABLE FUTURE AND MEET BALANCE DEFICIT BETWEEN ELECTRICITY DEMAND AND SUPPLY IN INDIA. IT WAS POINTED OUT BY THE ASSESSEE BEFORE ID. CIT(A) THAT DEMERGER OF THE POWER SECTION HAS RESULTED IN THE FOLLOWING BENEFIT: - A) POLICY TO VENTURE INTO POWER SECTOR AS A BUSINESS PROPOSITION; B) BETTER FOCUS ON THE POWER GENERATION AS A PROFIT CENTRE; C) INDEPENDENT UNITS COULD BE BENCH MARKED AGAINST PEERS; D) BETTER UTILIZATION OF THE CAPACITY S INCE THE UNITS HAS THE FLEXIBILITY TO SERVICE OTHER ENTITIES THE COMPANY HAD TWO PRONGED BUSINESS MODEL: _ TO MANAGE AND EXPAND THE EXISTING CAPTIVE POWER PLANT (CPP) CAPACITIES FOR SUPPORTING THE GROUP'S REQUIREMENTS AS WELL AS FOR TAPPING THE OPPORTUNI TIES AVAILABLE IN THE BROADER MARKET IN THE FORM OF OTHER COMPANIES CAPTIVE POWER REQUIREMENTS; AND _ TO SPEARHEAD THE POWER SECTOR INITIATIVES OF THE GROUP BY UNDERTAKING SUPER CRITICAL AND SUB - CRITICAL POWER PROJECTS UNDER THE INDEPENDENT POWER PROJECT (IPP) MODEL. ITA NO S . 1955 & 1956/ DEL/ 2013 21 E) THESE OBJECTIVES CLEARLY SPELLED OUT THE PURPOSE WITH WHICH DEMERGER OF THE POWER DIVISION OF BALLARPUR INDUSTRIES LTD. WAS UNDERTAKEN. F) THE BENEFIT OF ENHANCED DEPRECIATION GOT ALMOST MITIGATED BECAUSE OF INTEREST PAYMENT OF THE OUTSID ER VIZ. ALL BANKS AS IS EVIDENT FROM THE WORKING SUBMITTED BEFORE THE ID. CIT(A). THE ASSESSEE HAS TAKEN LOAN FROM ICICI BANK AND AXIS BANK (UTI BANK) RS. 165 CRORES FOR MAKING PAYMENT FOR AVAILING THIS FACILITY AND HAD PAID MORE THAN 2 CRORES TOWARDS LOAN PROCESSING CHARGES. THE A O HAS NOT DISPUTED THE OBJECTIVE WITH WHICH ASSESSEE HAD MADE THIS ARRANGEMENT. THE MAIN/PRIMARY OBJECTIVE OF ASSESSEE IS RELEVANT FOR PURPOSES OF EXPLANATION 3. IF THE PRIMARY OBJECTIVE WAS NOT TAX REDUCTION. THE EXPLANATION 3 C OULD NOT BE INVOKED. 41. THE NEXT ASPECT IS REGARDING INTEREST LIABILITY INCURRED BY ASSESSEE TOWARDS INTEREST PAYMENT ON THE LOAN OF RS. 165 CRORES TAKEN BY IT. ONE CANNOT LOOSE SIGHT OF THE FACT THAT THIS WAS ACTUAL CASH OUTFLOW OF ASSESSEE AND IT WAS N OT TO ANY RELATED PARTY. THIS COST INCURRED BY THE ASSESSEE WAS SOLELY ON BUSINESS CONSIDERATIONS IN AS MUCH AS THE AO HAS ALLOWED THE INTEREST CHARGES IN ASSESSEE S ASSESSMENT. HERE IS NOT A CASE WHERE ASSESSEE HAS MERELY CLAIMED DEPRECIATION ON ENHANCED VALUE OF ASSET BUT HAS SIMULTANEOUSLY INCURRED THE INTEREST COST ON ACCOUNT OF LOAN TAKEN FROM BANKS. THEREFORE, IT CANNOT BE SAID THAT THE MAIN OBJECT WAS TO CLAIM DEPRECIATION ON ENHANCED ITA NO S . 1955 & 1956/ DEL/ 2013 22 VALUE OF ASSETS. THE AO HAS OBSERVED THAT THIS LOAN ULTIMATELY BE NEFITED BIL T AS THE PAYMENT HAS BEEN MADE TO THAT COMPANY ONLY BY ASSESSEE. WE DO NOT FIND MUCH SUBSTANCE IN THIS PLEA OF AO AS WE DO NOT FIND ANY IMPROPRIET O RY IN THIS TRANSACTION. WE FURTHER FIND CONSIDERABLE FORCE IN THE SUBMISSION OF ID. SR. COUNSEL F OR THE ASSESSEE THAT SUCH A BIG LOAN COULD NOT BE AVAILED BY ASSESSEE WITHOUT DETAILED DUE DILIGENCE BEING UNDERTAKEN BY THE RESPECTIVE BANKS BEFORE GRANTING LOAN. BANK HAS TO ENSURE FULL SECURITY OF THE LOAN GIVEN BY IT. THE LOAN HAD BEEN GIVEN ON THE SEC URITY OF ASSETS AND, THEREFORE, IT CANNOT BE DENIED THAT THEY MUST HAVE TAKEN DUE CARE TO ENSURE THAT THE PROPER VALUATION OF ASSETS WAS AS PER THE REPORTS OF INDEPENDENT VALUERS. 42. LD. CIT(A) HAS OBSERVED AND RIGHTLY SO THAT AO HAS NOT POINTED OUT ANY MISTAKE IN THE VALUATION REPORT. IT IS TRUE THAT AO IS ENTITLED TO IGNORE THE VALUATION REPORT ALSO BUT FOR DETERMINING THE ACTUAL COST OF ASSETS IT CANNOT BE DENIED THAT IT WAS VERY MATERIAL EVIDENCE. 43. THE AO HAS OBSERVED THAT THE ASSESSEE COMPANY HAD JUST OBTAINED EASEMENTARY RIGHTS OF LAND HAVING THE PLANT AND MACHINERY AND BUILDINGS AT VERY NOMINAL RENTS FOR A PERIOD OF 15 YEARS. THE AO AFTER TAKING INTO CONSIDERATION THE NOMINAL RENT FIXED FOR THIS PURPOSE OBSERVED THAT THE OBVIOUS REASON WAS THAT THE LAND WOULD NEVER HAVE BEEN SUBJECT MATTER OF DEPRECIATION. WE FIND THAT ASSESSEE HAS CLARIFIED THIS ASPECT BY STATING THAT SINCE BIL T ITSELF WAS LEASEHOLDER THEREFORE, IT COULD NOT TRANSFER THE LEND. WE ARE UNABLE TO DISCERN ITA NO S . 1955 & 1956/ DEL/ 2013 23 ANYTHING WRONG IN THIS EXP LANATION, AS THE FACTS ARE ON RECORD. 44. IN VIEW OF ABOVE FACTS, WE ARE OF THE OPINION THAT ID. CIT(A) HAS RIGHTLY HELD THAT THE ACTUAL COST OF THE ASSETS WAS RS. 235 CRORES AND NOT THE W RITTEN DOWN VALUE AS PER INCOME - TAX ASSESSMENTS. 45. THERE IS ONE MORE IMPORTANT ASPECT WHICH FORTIFIES OUR VIEW UPHOLDING THE LD. CIT(A) S FINDINGS. IT IS PERTINENT TO NOTE THAT TWO WDV W WERE AVAILABLE BEFORE THE AO ONE AS PER THE BOOKS OF THE ASSESSEE AND SECOND AS PER THE INCOME - TAX COMPUTATION. 46. ADMITTEDLY, A S PER THE BOOKS OF ACCOUNT OF THE BIL T, THE WDV WAS RS. 214.16 CRORES ON THE DATE OF TRANSFER AND THE WDV AS PER INCOME - TAX ACT WAS 86.66 CRORES. THE AO HAS COMPLETELY IGNORED THIS IMPORTANT ASPECT WHILE CONCLUDING THAT THE ACTUAL COST FOR PURPOSES OF EXP LANATION 3 TO SECTION 43(1) WAS 86.66 CRORES AS PER THE INCOME - TAX ACT. WDV AS PER BOOKS OF ACCOUNT OF THE ASSESSEE IS DETERMINED ON THE BASIS OF RATE OF DEPRECIATION PRESCRIBED UNDER THE COMPANIES ACT IN SCHEDULE XIV TO THE COMPANIES ACT. THE DEPRECIATION RATES HAVE BEEN PRESCRIBED DIFFERENTLY UNDER COMPANIES ACT AND INCOME - TAX ACT. THE OBJECT OF ALL OWING DEPRECIATION, AS A CHARGE AGAINST THE PROFITS, IS TO ENABLE THE ASSESSEE TO RECOVER THE ORIGINAL COST OF ITA NO S . 1955 & 1956/ DEL/ 2013 24 ASSETS IN COURSE OF TIME SO THAT WHEN THE REPLAC EMENT OF ASSETS IS REQUIRED, THE ASSESSEE'S BUSINESS OPERATIONS DO NOT HAMPER FOR THE AVAILABILITY OF FUNDS. THEREFORE, COMPANIES ACT PRESCRIBES NORMALLY SUCH RATES WHICH MAY ENSURE THE ACHIEVEMENT OF AFOREMENTIONED OBJECTIVE. HOWEVER, UNDER THE INCOME TAX ACT SUCH RATES ARE PRESCRIBED WHICH ENSURE THAT ASSESSEE RECOVERS ITS CAPITAL COST IN SHORTEST POSSIBLE OF TIME. THEREFORE, THE RATES OF DEPRECIATION PRESCRIBED UNDER COMPANIES ACT ARE MORE REALISTIC. UNDER THE COMPANIES ACT THE OBJECT IS THAT THE COMPANY 'S ASSETS SHOULD CONTINUE IN THE BOOKS UPTO THEIR ENTIRE LIFE SPAN. BE THAT AS IT MAY, SINCE TWO WDV'S WERE AVAILABLE BEFORE THE AO FOR DETERMINING THE ACTUAL COST, HE COULD NOT HAVE IGNORED THE WDV AS PER THE BOOKS OF THE COMPANY THE ADOPTION. OF WHICH W AS MORE BENEFICIAL TO COMPANY. ADMITTEDLY, THERE IS VERY MINOR DIFFERENCE (235 - 214.16) CRORES IN THE VALUATION OF ASSETS AS PER BOOKS OF BILT AND THE ACTUAL CONSIDERATION PAID BY THE ASSESSEE COMPANY. THEREFORE, THIS ASPECT CLEARLY ESTABLISHES THE BONAF IDE OF ASSESSEE IN ADOPTING THE ACTUAL COST OF ASSETS AT RS. ITA NO S . 1955 & 1956/ DEL/ 2013 25 235 CRORES. WE, THEREFORE, DO NOT FIND ANY REASON TO DISTURB THE FINDINGS OF ID. CIT(A).' IN VIEW OF THE ABOVE FINDING OF THE CIT(A) AND THE ORDER OF THE ITAT CONFIRMING THE SAME, THE UNDERSIGNED HOLDS THE APPELLANT ELIGIBLE FOR DEPRECIATION FOR BOTH THE ASSTT. YEARS UNDER CONSIDERATION I.E. A.Y. 2008 - 09 AND 2009 - 10. THE GROUNDS OF APPEAL PERTAINING TO THIS ISSUE ARE ALLOWED IN BOTH THE ASSESSMENT YEARS. 7. AFTER GOING THROUGH THE AFORESAID ORDER PASSED BY THE LD. CIT(A) ON THE ISSUE IN DISPUTE AS WELL AS THE AFORESAID ITAT S ORDER DATED 9.11.2012 PASSED IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08 RELIED UPON BY THE LD. CIT(A) WHILE DELETING THE ADD ITION IN DISPUTE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. FIRST APPELLATE AUTHORITY HAS PASSED A WELL REASONED ORDER BY RESPECTFULLY FOLLOWING THE AFORESAID ITAT S ORDER DATED 9.11.2012 IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08. WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THEREFORE, NO INTERFERE IS REQUIRED ON OUR PART, HENCE, WE UPHOLD THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), WHICH IS IN ACCORDANCE WITH THE ITAT S ORDER DATED 9.11.2012 IN ASSESSEE S OWN CASE FOR THE ASST T. YEAR 2007 - 08 IN ITA NO. 3259/DEL/2010 TITLE BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED AND IN ITA NO. 4276/DEL/2010 (A.Y. ITA NO S . 1955 & 1956/ DEL/ 2013 26 2007 - 08) DCIT VS. BILT POWER LIMITED (NOW KNOWN AS) AVANTHA POWER & INFRASTRUCTURE LIMITED. 8 . IN THE RESULT, BOTH THE A PPEAL S OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 20 / 0 2 /20 1 5 . SD/ - SD/ - [ S.V. MEHROTRA] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 20 / 0 2 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES