M/s Padmini Products Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-5(1)(2), Bangalore

ITA 2255/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0724 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 26-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M GANDHI
• Keywords: Depreciation; Wholly owned subsidiary
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 2255 /BANG/201 8 ASSESSMENT YEAR : 20 15 - 16 M/S. PADMINI PRODUCTS PVT. LTD., #157, K KAMARAJ ROAD, BANGALORE 560 042. PAN: AADCP1790L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5 (1) (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : S HRI M. GANDHI, CA RESPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL. CIT (DR) DATE OF HEARING : 2 8 . 11 .2018 DATE OF PRONOUNCEMENT : 29 . 11 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-5, BANGALORE DATED 13.05.2018 FOR ASSESS MENT YEAR 2015-16. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) 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. 2. AS REGARDS DISALLOWANCE OF DEPRECIATION ON INTAN GIBLE ASSETS TO THE EXTENT OF RS.1,64,95,840/-. 1. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIF IED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DENY ING DEPRECIATION OF RS.1,64,95,840/-(RS.84,56,239/-+RS.80,39,601/-) ON INTANGIBLES BEING BRAND NAMES AND TRADEMARKS VALUED AT RS.65,26,40,15 0/-. 2. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT REVALUATION OF THE INTANGIBLES WAS EFFECTED BY THE ERSTWHILE FIRM, BEFORE THE SUCCESSION, AND NOT THAT OF THE APPELLANT AS A RESU LT OF ON SUCCESSION. 3. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE ASSETS (INCLUDING THE INTANGIBLE ASSETS) OF THE ERSTWHILE FIRM WERE TRANSFERRED TO THE APPELLANT IN THE SUCCESSION AS CONTEMPLATED UNDER SECTION 47(XIII) OF THE IT ACT. 4. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT NEITHER UNDER SECTION 47(XIII) OR ELSEWHERE IN THE IT ACT IS THER E A STIPULATION THAT ITA NO. 2255/BANG/2018 PAGE 2 OF 9 ASSETS CANNOT BE REVALUED PRIOR TO SUCCESSION OR TH E FACT THAT TRANSFER NEEDS TO NECESSARILY TAKE PLACE AT THE BOOK VALUE. THE VERY FACT THAT SECTION 47(XIII) EXEMPTS SUCH TRANSACTION FROM THE PURVIEW OF TRANSFER FOR THE PURPOSE OF CAPITAL GAINS IS THAT THERE IS A CONTEMPLATION 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 THAT SECTION 47(XIII) MAKES AN EXPLICIT MENTION OF TRANSFER OF INTANGIBLE ASSETS. 6. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT WHERE IT WAS INTENDED THAT THE TRANSFER OF ASSETS SHOULD NOT TAK E PLACE AT A VALUE HIGHER THAN THE BOOK VALUE, THE SAME HAS BEEN EXPLI CITLY PROVIDED FOR AS IN THE CASE OF SECTION 2 (19AA) OF THE ACT WHICH EXPLAINS THE TERM DEMERGER. 7. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT IN CASES WHERE IT WAS INTENDED THAT THE EFFECT OF REVALUATION NEED S TO BE IGNORED THE SAME HAS BEEN EXPLICITLY PROVIDED FOR AS ENVISAGED UNDER SECTION 50B OF THE ACT, DEALING WITH COMPUTATION OF CAPITAL GAI NS IN A SLUMP SALE. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHOR ITIES HAVE FAILED TO APPRECIATE THAT THE REVALUATION OF THE ASSETS OF TH E FIRM HAS TO BE NECESSARILY CARRIED OUT AND THE PARTNERS' ACCOUNTS HAVE TO BE NECESSARILY CREDITED IN RESPECT OF SUCH REVALUATION WHEN THE BUSINESS OF THE FIRM IS SUCCEEDED TO BY THE COMPANY KEEPING IN MIND THE BUSINESS REALITY THAT THE SHARES OF THE COMPANY MAY BE LISTED OR VENTURE CAPITALISTS MAY INVEST IN THE COMPANY. 9. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT SECTION 43(1) OF THE ACT WHICH DEFINES THE TERM 'ACTUAL COST' NOWHER E STIPULATES THAT THE INCURRENCE OF THE EXPENDITURE NEEDS TO BE NECESSARI LY IN CASH. 10. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT BOARD CIRCULAR NO.21 DATED 09.07.1969 IN PARAGRAPH 11 (TH OUGH CURRENTLY WITHDRAWN VIDE CIRCULAR NO.382 FOR DIFFERENT REASON S) HAD RECOGNIZED THE TRANSFER OF TECHNICAL KNOW-HOW OR SERVICES OR D ELIVERY ABROAD OF MACHINERY AND PLANT FOR CONSIDERATION IN THE FORM O F SHARES. 11. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THAT THE BOARD CIRCULAR NO 382 DATED 04.05.1984 CLARIFIES THE ASPE CT REGARDING 'TAXATION OF SHARES OF INDIAN COMPANIES ALLOTTED TO NON-RESIDENTS IN CONSIDERATION FOR THE PURCHASE OF MACHINERY AND PLA NT DELIVERED ABROAD UNDER CLAUSE (VI/VII) OF SUB-SECTION (1) THE REBY RECOGNIZING THE ACQUISITION OF ASSETS FOR CONSIDERATION OTHER THAN CASH. 12. THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE SCHEDULE VI OF THE COMPANIES ACT, 1956 ALSO RECOGNIZES THE ALLOTMENT O F SHARES FOR CONSIDERATION OTHER THAN CASH. ITA NO. 2255/BANG/2018 PAGE 3 OF 9 13. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTI FIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER, IN DIS ALLOWING THE DEPRECIATION ON INTANGIBLE ASSETS, WHEN IN FACT, TH E EXISTENCE OF THE AFORESAID INTANGIBLE ASSETS AND VALUATION THEREOF C ERTIFIED BY A VALUER HAS NOT BEEN DISPUTED BY THE LEARNED ASSESSING OFFI CER. 14. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTI FIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISA LLOWING THE DEPRECIATION, WHEN THE FACT THAT THE INTANGIBLES OR IGINALLY BELONGED TO THE FIRM HAS NOT BEEN QUESTIONED AND IN THE APPELLA NTS OWN CASE FOR AY 2013-14 THE HON`BLE ITAT HAS ALLOWED THE DEPRECI ATION. 15. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTI FIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISA LLOWING THE DEPRECIATION EVEN WHEN THE HON'BLE ITAT HAS ALLOWED THE APPEAL OF THE APPELLANT FOR A Y 2013-14. FOR THE ABOVE REASONS AND FOR SUCH OTHER REASONS WH ICH MAY BE ALLOWED BY THE HON'BLE MEMBERS TO BE URGED AT THE T IME OF HEARING, IT IS PRAYED THAT THE AFORESAID APPEAL BE ALLOWED. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ALTH OUGH THE ASSESSEE HAS RAISED AS MANY AS 15 GROUNDS OF APPEAL BUT THE ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING NON-GRANTING OF DEPRECIATION ON INTANGIBLE ASSETS TO THE EXTENT OF RS. 1,64,95,840/- BEING BRAND NAMES A ND TRADEMARKS VALUED AT RS. 65,26,40,150/-. HE SUBMITTED A COPY OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14 IN ITA NOS. 1530 & 1531/BANG/2016 DATED 28.04.2017. HE ALSO SUBMITTED THAT IN THIS ORDER FOR ASSESSMENT YEAR 2013-14, THE TRIBUNAL HAS FOLLOWED ANOTHER TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 AND REPRODUCED THE RELEVANT PARAS FROM THE EARLIER TRIBUNAL ORDER IN P ARA NO. 9 OF THIS TRIBUNAL ORDER FOR ASSESSMENT YEAR 2013-14. HE SUBMITTED TH AT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE TRIBUNAL ORDER IN ASSESSMENT YEAR 2013-14. 4. AS AGAINST THIS THE LD. DR OF REVENUE SUPPORTED THE ORDER OF CIT(A). HE ALSO SUBMITTED THAT AS PER THE TRIBUNAL ORDER FOR A SSESSMENT YEAR 2012-13 REPRODUCED BY THE TRIBUNAL IN LATER ORDER FOR ASSES SMENT YEAR 2013-14, THE ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSES SEE AND APPEAL OF THE ASSESSEE WAS DISMISSED AND THEREFORE, THE ISSUE IN DISPUTE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL ORDER IN ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2012-13. ITA NO. 2255/BANG/2018 PAGE 4 OF 9 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE THE RELEVANT PARA FROM THE IMPUGNED ORDER OF CIT(A) AND THE SAME IS PARA NO. 5 WHICH READS AS UNDER. 5. I HAVE CONSIDERED THE ABOVE GROUNDS OF APPEAL, S TATEMENT OF FACTS AND WRITTEN SUBMISSIONS FILED BY THE APPELLANT AND ALSO PERUSED THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS OBSERVE D THAT THE FIRM WAS CONVERTED INTO PRIVATE LTD. COMPANY ON 30.01.20 04, AS A RESULT OF THE SUCCESSION, THE ASSESSES REVALUED ALL ITS IN TANGIBLE ASSETS AND ARRIVED AT VALUE OF RS. 65,26,40,150/- AND THE SAME ASSETS AND LIABILITIES HAVE BEEN INCREASED NOTIONALLY BY THE A SSESSEE AFTER THE CONVERSION INTO A COMPANY. INTANGIBLES WERE SIMPLY VALUED IN THE HANDS OF COMPANY AT THE TIME OF SUCCESSION, AS PER ASSESSEES OWN ESTIMATION, BUT NOT FOR ANY ACTUAL CONSIDERATION. F URTHER, IT WAS FOUND THAT THE ASSESSEE NEITHER PURCHASE OR ACQUIRE THESE INTANGIBLES FROM ANY THIRD PARTY, NOR WAS THERE ANY ACTUAL COST INCU RRED BY THE APPELLANT AND THEREFORE, THE APPELLANT IS NOT ENTIT LED TO CLAIM DEPRECIATION ON INTANGIBLE ASSETS WHICH WAS NOT EXI STING BEFORE ITS CONVERSION INTO PRIVATE LIMITED COMPANY ON 30.01.20 04. THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION CLAIMED ON REVALUED INTANGIBLE ASSET OF THE PRE-CONVERSION PERIOD WHILE ALLOWING THE DEPRECIATION RELATING TO THE INTANGIBLE ASSETS OF P OST CONVERSION PERIOD. AS THERE IS NO INFIRMITY IN THE IMPUGNED OR DER PASSED BY THE ASSESSING OFFICER NO INTERFERENCE IS NEEDED. THE GR OUNDS TAKEN ARE THEREBY DISMISSED. WHEREAS, THE AR OF THE APPELLANT HAS PLEADED THAT THE LOSSES ARE ALLOWED TO BE CARRIED FORWARD AS PER THE PROVISIONS OF LAW. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 6. NOW WE REPRODUCE PARA NOS. 9 AND 10 FROM THE TRI BUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14 BEC AUSE IN PARA 9 OF THIS TRIBUNAL ORDER, THERE IS REPRODUCTION OF THE R ELEVANT PARA FROM THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2012-13. THESE PARAS ARE AS UNDER. 9. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE HAS BEEN RAISED BEFORE THE TRIBUNAL IN EARLIER AY 2012-13. THE TRIB UNAL FOLLOWING ITS ORDER FOR EARLIER YEARS HAD DECIDED THE ISSUE IN FA VOUR OF ASSESSEE, AFTER HOLDING THAT DEPRECIATION IS ALLOWABLE ON INT ANGIBLE ASSETS. THE RELEVANT OBSERVATIONS OF THE ORDER OF TRIBUNAL ARE EXTRACTED HEREUNDER FOR 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 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 ITA NO. 2255/BANG/2018 PAGE 5 OF 9 LAW TO REVALUE THE ASSETS BEFORE ITS CONVERSION INT O A COMPANY. AS RIGHTLY POINTED OUT BY THE LEARNED COUN SEL FOR THE ASSESSEE, WHEN A PARTNERSHIP FIRM IS DISSOLVED, IT NEEDS TO REVALUE ITS ASSETS AS THE PARTNERS ARE ENTITLED TO RECEIVE THE VALUE OF THE ASSETS AS ON THE DATE OF DISSOLUTI ON IN THE RATIO OF THEIR CONTRIBUTION OF CAPITAL AND, THEREFO RE, TO ARRIVE AT THE VALUE OF THE ASSETS AS ON THE DATE OF DISSOLUTION THE REVALUATION OF ASSETS AND LIABILITIES IS REQUIR ED TO BE DONE. SIMILAR IS THE CASE WHERE ANY OF THE PARTNERS RETIRES OR ANY NEW PARTNER IS INDUCTED. BUT WHAT HAPPENS WH EN THERE IS NO INDUCTION OF A NEW PARTNER OR RETIREMEN T OF ANY PARTNER OR DISSOLUTION OF PARTNERSHIP FIRM? THE REQ UIREMENT OF REVALUATION OF THE ASSETS AND LIABILITIES ARISES ONLY IN THE CIRCUMSTANCES MENTIONED ABOVE. IN THE CASE ON HAND, THE ASSESSEE HAD REVALUED ITS ASSETS ON THE GROUND THAT IT WAS GETTING CONVERTED INTO A PRIVATE LIMITED COMPANY. T HE LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED RELIANC E UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF KARTIKEYA A.V SARABHAI (CITED SUPRA) IN SUPPORT OF HIS CONTENTION THAT THE SHAREHOLDERS WHO BUY SHARES WIL L NOT HAVE ANY INTEREST IN THE PROPERTY OF THE COMPANY WH ICH IS ENTIRELY DISTINCT FROM THE SHAREHOLDER AND THE TRUE POSITION OF THE SHAREHOLDER IN A COMPANY ON BUYING THE SHARE S IS THAT HE BECOMES ENTITLED TO A PERCENTAGE IN THE PRO FITS OF THE COMPANY IF AND WHEN COMPANY DECLARES, SUBJECT TO MEMORANDUM OF ASSOCIATION THAT THE PROFITS OR ANY P ORTION THEREOF SHOULD BE DISTRIBUTED AS DIVIDEND AMONGST T HE SHAREHOLDERS AND HE HAS FURTHER RIGHT TO PERCENTAGE IN THE ASSETS OF THE COMPANY WHICH WOULD BE LEFT-OVER AFTE R WINDING UP. THUS, HE TRIED TO BRING OUT DISTINCTION BETWEEN THE RIGHTS OF THE PARTNERS IN A PARTNERSHIP FIRM WH ICH IS JOINT AND SEVERAL IN CONTRAST TO THE RIGHTS AND LIA BILITIES OF THE SHAREHOLDERS IN A COMPANY. HE HAS ALSO RELIED U PON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F VODAFONE INTERNATIONAL HOLDINGS REPORTED IN 341 ITR 1 (SC) TO BRING OUT DISTINCTION BETWEEN THE HOLDING C OMPANY AND WHOLLY OWNED SUBSIDIARY IN WHICH THE HONBLE SUPREME COURT HAS HELD THAT THE LEGAL RELATIONSHIP BETWEEN THE HOLDING COMPANY AND WHOLLY OWNED SUBSIDIARY IS THAT THEY ARE TWO LEGALLY DISTINCT PERSONS AND HOLDING C OMPANY DOES NOT OWN THE ASSETS OF A SUBSIDIARY AND IN LAW THE MANAGEMENT OF THE BUSINESS OF THE SUBSIDIARY ALSO L IES WITH ITS DIRECTORS. THUS, ACCORDING TO HIM, THE PARTNERS HIP FIRM AND THE ASSESSEE COMPANY ARE TWO DIFFERENT AND DIST INCT LEGAL ENTITIES AND IT CANNOT BE SAID THAT THE ASSES SEE COMPANY HAS NOT ACQUIRED ANY ASSETS FROM THE ERSTWH ILE PARTNERSHIP FIRM. TO APPRECIATE THESE CONTENTIONS O F THE ASSESSEE, WE HAVE TO EXAMINE THE PROCEDURE AND EFFE CT OF CONVERSION OF A PARTNERSHIP FIRM INTO A COMPANY. TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TE XSPIN ITA NO. 2255/BANG/2018 PAGE 6 OF 9 ENGG AND MANUFACTURING WORKS REPORTED IN (2003) 263 ITR 345 (BOM) HAS CONSIDERED THE EFFECT OF CONVERSION O F A PARTNERSHIP FIRM INTO A LIMITED COMPANY BY VIRTUE O F SEC. 575 OF THE COMPANIES ACT AND HAS HELD THAT UNDER PA RT IX OF THE COMPANIES ACT, WHEN A PARTNERSHIP FIRM IS CO NVERTED TO A LIMITED COMPANY, THE PROPERTIES OF THE ERSTWHI LE FIRM VESTS IN THE LIMITED COMPANY. IT WAS OBSERVED THAT THERE IS A DIFFERENCE IN VESTING OF THE PROPERTY AND DISTRIBUT ION OF THE PROPERTY. IT WAS HELD THAT ON VESTING IN THE LIMITE D COMPANY UNDER PART IX OF THE COMPANIES ACT, THE PROPERTIES VEST IN THE COMPANY AS THEY EXIST WHILE DISTRIBUTION OF PRO PERTY ON DISSOLUTION PRE-SUPPOSESDIVISION,REALIZATION,ENCASH MENT OF ASSETS AND APPROPRIATION OF THE REALIZED AMOUNT AS PER THE PRIORITY AND THAT THIS DIFFERENCE IS VERY IMPORTANT . HAVING OBSERVED THUS, THE HONBLE HIGH COURT HELD THAT THE RE IS NO TRANSFER OF PROPERTY AND NO CAPITAL GAINS ARISE FRO M SUCH A TRANSACTION. THE HONBLE HIGH COURT WAS DEALING WIT H THE CASE OF THE PARTNERSHIP FIRM WHILE IN THE CASE ON H AND, WE ARE DEALING WITH THE CASE OF THE COMPANY. IN THE CA SE 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 OF THE ASSET S IN ITS BOOKS OF ACCOUNTS. THE CLAIM OF DEPRECIATION IS ON TRADEMARKS WHICH ARE INTANGIBLE ASSETS AND DEPRECIA TION THEREON IS ALLOWABLE U/S 32(1)(II) OF THE IT ACT. T HE TWO CONDITIONS MENTIONED IN SEC. 32 ARE THAT THE ASSETS SHOULD BE OWNED BY THE ASSESSEE AND SHOULD HAVE BEEN USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE ASSES SEE. THE SUB-CLAUSES THERETO ENUMERATE THE DEDUCTIONS ALLOWA BLE U/S 32. SUB-CLAUSE (II) THEREOF PROVIDES FOR A DEDUCTIO N AT A PRESCRIBED PERCENTAGE OF THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS. 5TH PROVISO THERETO PROVIDES THAT IN RESPECT OF CIRCUMSTANCES SUCH AS SUCCESSION, AMALGAMATION O R DEMERGER, THE AVERAGE DEDUCTION ON ACCOUNT OF DEPRECIATION ON TANGIBLE OR INTANGIBLE ASSETS SHALL NOT EXCEED, IN ANY PREVIOUS YEAR, THE DEDUCTION CALCULA TED AT THE PRESCRIBED RATES AS IF THE SUCCESSION, AMALGAMA TION OR DEMERGER HAS NOT TAKEN PLACE AND SUCH DEDUCTION SHA LL BE APPORTIONED BETWEEN THE PREDECESSOR AND THE SUCCESS OR, OR THE AMALGAMATING COMPANY AND AMALGAMATED COMPANY OR THE DEMERGED COMPANY AND THE RESULTING COMPANY AS T HE CASE MAY BE, IN THE RATIO OF DAYS FOR WHICH THE ASS ETS WERE USED BY THEM. ITA NO. 2255/BANG/2018 PAGE 7 OF 9 18. IN ALL THE THREE CIRCUMSTANCES ABOVE, THE ERSTW HILE 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. THEREFOR E, THE ASSETS COME TO VEST IN THE HANDS OF THE COMPANY AND THERE IS NO COST OF ASSETS TO THE COMPANY ON SUCH VESTING. W HEN THE TRANSACTION ITSELF HAS BEEN TREATED TO BE NOT A TRA NSFER, BUT IS AKIN TO SUCCESSION, IN OUR OPINION THE 5TH PROVI SO TO SUB- CLAUSE (II) OF SEC. 36(1) APPLIES AND THE DEPRECIAT ION HAS TO BE CALCULATED AS IF THERE IS NO TRANSFER. 19. FURTHER, AS THERE IS NO TRANSFER, THERE IS NO C OST 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 A CTUAL COST TO THE ASSESSEE. AS ACTUAL COST TO THE ASSESSEE WAS NIL, THE WD VALUE OF THE ASSETS IN THE HANDS OF THE PREDECES SOR FIRM SHALL BE CONSIDERED FOR THE ALLOWANCE OF DEPRECIATI ON. 20. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFER E WITH THE ORDERS OF THE AUTHORITIES BELOW. 21. THE LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED RELIANCE UPON THE DECISION OF ITAT AT AHMEDABAD IN THE CASE OF PRAKASH CHEMICAL AGENCIES PVT. LTD. REPORTE D 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 T HE ASSESSEE COMPANY THEREIN WHEREAS IN THE CASE BEFORE US, IT IS THE CASE OF CONVERSION OF PARTNERSHIP FIRM INTO A COMPANY. THEREFORE, THE SAID DECISION IS NOT APPLIC ABLE TO THE CASE ON HAND. 22. THE OTHER OBJECTION OF THE LEARNED COUNSEL FOR 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 NO T 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 A CQUIRED 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 CLA IM OF DEPRECIATION CAN BE EXAMINED EVEN IN THE ASSESSMENT S YEARS SUBSEQUENT TO THE ASSESSMENT YEAR IN WHICH TH E ITA NO. 2255/BANG/2018 PAGE 8 OF 9 SUCCESSION HAS TAKEN PLACE. THIS ARGUMENT IS ACCORD INGLY REJECTED. 23. THE OTHER OBJECTION OF THE ASSESSEE IS THAT THO UGH ONLY THE AO IS ENTITLED TO INVOKE THE PROVISIONS OF EXPL ANATION 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 INVOKED THE PROVISI ONS OF EXPLANATION 3 TO SEC. 43(1) OF THE IT ACT BUT HAS O NLY JUSTIFIED THE ACTION OF THE AO IN QUESTIONING THE C LAIM OF DEPRECIATION BY CITING THE PROVISION OF SEC. 43(1) AND EXPLANATION 3 THEREOF. THEREFORE, WE SEEN NO STRENG TH 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 THAT HE CAN DO WHAT THE AO COULD DO AND CAN ALSO DIRECT THE LATTER TO DO WHAT THE LATTER FAILED TO DO AS LAID DOWN BY THE HO NBLE 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 NEED S INTERFERENCE. THEREFORE, THIS ARGUMENT OF THE ASSES SEE IS ALSO REJECTED. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE FO R ALL THE 25. ASSESSMENT YEARS ARE DISMISSED. 9. RESPECTFULLY FOLLOWING THE DECISION OF COORDINAT E BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE DEEM IT APP ROPRIATE 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 TRIBUNA L FOR THE EARLIER YEAR, WE DIRECT THE AO TO ALLOW DEPRECIATION FOR IN TANGIBLE ASSETS. 7. WHEN WE GO THROUGH THE RELEVANT PARAS REPRODUCED FROM THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13, WE FIND THAT IN THAT YEAR, THE ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE. WE FIND THAT IN PARA 9 OF THIS TRIBUNAL ORDER FOR ASSESSMEN T YEAR 2013-14, AN APPARENT MISTAKE HAS BEEN COMMITTED BY SAYING THAT THE TRIBUNAL IN ITS ORDER FOR EARLIER YEARS HAS DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE BECAUSE WE FIND THAT AS PER THE RELEVANT PARAS REPR ODUCED FROM THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 2012-13, IT HAS BEEN STAT ED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE AS PER THE TRIBUNAL OR DER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2005-06 & 2008-09 IN ITA NOS. 429 TO ITA NO. 2255/BANG/2018 PAGE 9 OF 9 430/BANG/2013 DATED 10.01.2014 AND PARA NOS. 16 TO 25 OF THAT TRIBUNAL ORDER FOR EARLIER YEARS WERE ALSO REPRODUCED AND AS PER THE SAME, THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2005-0 6 AND 2008-09 ARE DISMISSED BY THE TRIBUNAL AND RESPECTFULLY FOLLOWIN G THAT TRIBUNAL ORDER, THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2012-13 WAS ALSO DISMISSED. ALTHOUGH IN ASSESSMENT YEAR 2013-14, THE TRIBUNAL H AS STATED IN PARA NO. 10 OF THAT TRIBUNAL ORDER WHICH HAS BEEN REPRODUCED ABOVE THAT THE TRIBUNAL FINDS NO REASON TO TAKE A CONTRARY VIEW IN THIS APP EAL AND THEREFORE, FOLLOWING THE TRIBUNAL ORDER FOR EARLIER YEARS, THE AO WAS DIRECTED TO ALLOW DEPRECIATION ON INTANGIBLE ASSETS. WHEN THE ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE FOR ASSESSMENT YEARS 2005-06 AND 2008-09 AND ALSO FOR ASSESSMENT YEAR 2012-13, THIS TRIBUNAL ORDER FOR ASSESSMENT YEAR 2013-14 IN WHICH, IT IS STATED THAT THE EARLIE R TRIBUNAL ORDERS ARE BEING FOLLOWED, IT CANNOT BE CONSIDERED AS BINDING PRECED ENCE AND HENCE, BY RESPECTFULLY FOLLOWING THE EARLIER TRIBUNAL ORDERS FOR ASSESSMENT YEARS 2005-06, 2008-09 AND 2012-13, THE ISSUE IN DISPUTE IS DECIDED AGAINST THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 29 TH NOVEMBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.