M/s. Continental Device India Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 316/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97665 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR SENIOR
• Assessee Lawyers: R K KAPOOR C AS; PARDEEP DINODIA
• Keywords: Gift; Depreciation; Cost of acquisition; Valuation report
• Section: 32; 148; 28; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.134/DEL./2009 (ASSESSMENT YEAR : 2005-06) ITA NO.1319/DEL./2011 (ASSESSMENT YEAR : 2006-07) ITA NO.5656/DEL./2010 (ASSESSMENT YEAR : 2007-08) ITA NO.316/DEL./2013 (ASSESSMENT YEAR : 2009-10) M/S. CONTINENTAL DEVICE INDIA LTD., VS. ADDL.CIT, RANGE 3, C 120, NARAINA INDUSTRIAL AREA, NEW DELHI. NEW DELHI 110 028. (PAN : AAACC1835E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PARDEEP DINODIA & R.K. KAPOOR, CAS REVENUE BY : SMT. PARWINDER KAUR, SENIOR DR DATE OF HEARING : 27.07.2015 DATE OF PRONOUNCEMENT : 16.10.2015 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) VI, NEW DELHI FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08 AND 2009-10. IN THESE APPEALS, IDENTICAL GROUNDS ARE RAISED EXCEPT FOR VARIANCE IN FIGURE. SINCE COMMON ISSUES ARE 2 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 RAISED IN THESE APPEALS AND THEY PERTAIN TO THE SAM E ASSESSEE, THEY ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2 THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL IN ITA NO. 134/DEL/2009 :- 1 THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION AT HALF T HE NORMAL RATES, EVEN THOUGH ASSET IN RESPECT OF DELTRON UNIT WAS ACQUIRED AND P UT TO USE ON 1.10.2004; BECAUSE THE ASSESSEE HAD ITSELF CLAIMED DEPRECIATIO N ON ASSETS OTHER THAN BUILDING AT HALF OF THE NORMAL RATES. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE ASSESSEE WAS STATUTORILY ENTITLED TO FULL DEPRECIATION AT NORMAL RATES AS PER LAW AS THE ASSETS ACQUIRED FROM DELTRON LTD. WERE PUT TO USE ADMITTED LY ON 1.10.2004 FOR 180 DAYS AND MORE DURING THE YEAR ENDING 31 ST MARCH 2005 [1.10.2004 TO 31.3.2005] 3 THAT THE LEARNED CIT(A) HAS FURTHER ERRED IN UPHO LDING THAT THE ASSETS OF DELTRON LTD. WERE ACQUIRED BY THE ASSESSEE AT HIGHE R PRICE WITH A VIEW TO REDUCE LIABILITY TO INCOME TAX BY CLAIMING HIGHER DEPRECIA TION WITH REFERENCE TO ENHANCE COST, ON WHOLLY ERRONEOUS AND ILLEGAL GROUNDS 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , IT MAY BE HELD THAT THE ASSETS LIKE BUILDING & MACHINERY WERE PURCHASED ON THE BASIS OF VALUATION OF THE GOVT. APPROVED VALUERS, WHO WERE EXPERTS; AND A S SUCH, THE INVOKING OF THE PROVISION OF EXPLANATION 3 TO SECTION 43(1) WAS UNC ALLED FOR AN UNJUSTIFIED. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE WRITTEN DOWN VALUE AS PER INCOME TAX RULES, OF DELTRON LTD. OF THE VARIOUS ASSETS INCLUDING BUILDI NG WAS LOW, AS COST OF ACQUISITION OF BUILDING, PLANT AND MACHINERY ETC. I N THE R&D UNIT OF DELTRON LTD. HAD BEEN ALLOWED TO THE ASSESSEE AS SCIENTIFIC RESE ARCH EXPENDITURE U/S 35(1) OF THE INCOME TAX ACT; AND AS SUCH, THE SAME COULD NOT BE SAID TO BE THE MARKET VALUE OF THESE ASSETS. 6 THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHO LDING THE DISALLOWANCE OF 50% OF BOARDING AND LODGING EXPENSES IN RESPECT OF FOREIGN TRAVELLING 3 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 3. GROUND NOS.1 TO 4 IN ALL THE APPEALS AND GROUND NO. 5 IN ITA NO. 134/D/2009 ARE COMMON. APROPOS THESE GROUNDS, BRIE F FACTS RELATING TO THESE GROUNDS ARE AS FOLLOWS: 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRONIC COMPONENTS. THE RETURN OF INCOME WAS FI LED ON 28.10.2005 DECLARING AN INCOME OF RS. 7,04,54,286/- WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) ON 30.10.2006 AT THE RETURNED INCOME FILED BY THE ASSESSEE. THE CASE WAS SELECTED UNDER SCRUT INY AND STATUTORY NOTICE U/S 143(2) DATED 2.8.2006 WAS ISSUED TO THE ASSESSEE, F IXING THE HEARING ON 17.8.2006. IN RESPONSE TO THE NOTICE, THE AUTHORIS ED REPRESENTATIVE APPEARED BEFORE THE AO. THE AO DIRECTED THE ASSESSEE TO FUR NISH ITEM-WISE LISTING OF ADDITIONS TO FIXED ASSETS IN EACH BLOCK GIVING DATE OF ACQUISITION AND DATE PUT TO USE WITH PROOF OF ACQUISION/DELIVERY AND USE IN RES PECT OF ADDITIONS TO ASSETS FOR VALUE EXCEEDING RS. 5,00,000/- AND VIDE LETTER DATE D 14.9.2007, THE ASSESSEE SUBMITTED THESE DETAILS. AFTER PERUSING THE DETAIL S, THE AO NOTICED THAT MOST OF THESE ASSETS HAD BEEN CLAIMED TO PUT TO USE ON 1.10 .2004. FURTHER, THE AO OBSERVED THAT A NEW UNIT M/S DELTRON LTD. HAD BEEN ACQUIRED IN THE AY 2005-06 AS A GOING CONCERN AND ALL FIXED ASSETS THEREOF HAD BEEN CLAIMED TO HAVE BEEN PUT TO USE ON 1.10.2004. THE AO ASKED THE ASSESSEE TO SUBMIT THE COPY OF AGREEMENT AND DETAILS AND VALUATION OF ASSETS AND L IABILITIES AND THEIR REFLECTION 4 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 IN THE DEPRECIATION CHART OF THE ASSESSEE FOR AY 20 05-06 AND THE ASSESSEE FURNISHED A LETTER DATED 16.11.2007 ALONGWITH THE A GREEMENT OF PURCHASE OF PLANT AND MACHINERY FROM DELTRON LTD. AND THE VALUA TION REPORT OF LAND, BUILDING AND PLANT AND MACHINERY. THE AO NOTICED FROM A PER USAL OF THE AGREEMENT DATED 27 TH DAY OF SEPTEMBER, 2004 THAT BOTH THE ASSESSEE AND M/S DELTRON LTD. HAVE THE SAME ADDRESS I.E. C-120, NARAINA INDL. ARE A, NEW DELHI-110 028 AND THAT BOTH WERE ENGAGED IN THE SAME ELECTRONICS BUSI NESS. THE AO THEREFORE OBSERVED THAT IT WAS NECESSARY TO LOOK INTO THE REL ATIONSHIP OF MANAGEMENT OF THE TWO CONCERNS AND ACCORDINGLY, ASKED THE ASSESSE E TO FURNISH THE NAMES OF COMMON DIRECTORS/SHAREHOLDERS AND THEIR SHARE HOLDI NGS IN THE TWO COMPANIES. THE ASSESSEE ON 30.11.2007 FURNISHED THE REQUISITE DETAILS. FROM THE DETAILS, THE AO OBSERVED THAT THE CONCERNS WERE RUNNING UNDER CO MMON MANAGEMENT, THE DIRECTORS WERE ALSO COMMON AND THEY WERE OPERATING FROM THE SAME ADDRESS. THE AO FURTHER OBSERVED THAT THE FACTS OF PURCHASE OF FIXED ASSETS OF M/S DELTRON LTD. AS A GOING CONCERN WAS DISCLOSED BY TH E ASSESSEE ONLY AFTER THE PROBE DURING ASSESSMENT PROCEEDINGS AND NO SUCH DET AILS HAD BEEN FURNISHED IN ANY MANNER IN THE AUDIT REPORT OR PAPERS ENCLOSED W ITH THE RETURN OF INCOME. 4.1 THEREFORE THE AO OBSERVED THAT IT WAS NECESSARY TO VERIFY WHETHER THE FIXED ASSETS OF M/S DELTRON LTD. HAD BEEN ACCOUNTED FOR ON WRITTEN DOWN VALUE OR NOT. ACCORDINGLY, THE AO ASKED THE ASSESSEE TO SUBMIT THE COPY OF 5 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 COMPUTATION OF TOTAL INCOME OF M/S DELTRON LTD., IT S DEPRECIATION FOR A.Y. 2005- 06 INDICATING THE WDV OF ALL ASSETS PURCHASED BY TH E ASSESSEE AND THEIR CORRESPONDING SALE PRICE IN THE BOOKS OF M/S DELTRO N LTD. AND THE ASSESSEE SUBMITTED THE REQUISITE DETAILS. THE AO WAS OF THE OPINION THAT THE PURCHASE CONSIDERATION PAID BY THE ASSESSEE ON VARIOUS BLOCK OF ASSETS WAS SUBSTANTIALLY HIGHER THAN THE WDV OF THESE ASSETS AS PER THE ACT AS ON 1.4.2004. 4.2 ACCORDING TO THE AO, IN THE LIGHT OF THE EXPLAN ATION 3 OF SECTION 43(1) DEFINING THE ACTUAL COST FOR THE PURPOSE OF BLOC OF ASSETS, HE OBSERVED THAT IT WAS, THEREFORE, NECESSARY TO LOOK INTO WHETHER THE MAIN PURPOSE OF THE TRANSFER OF ASSETS DIRECTLY OR INDIRECTLY TO THE ASSESSEE WAS F OR THE REDUCTION OF LIABILITY TO INCOME TAX (BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST) OR NOT. THE AO REVEALED THAT THE SAID COMPANY HAD SHO WN NET CURRENT LOSS OF RS. 3,39,17,585/- AND IT HAD BROUGHT FORWARD DEPRECATIO N OF RS. 4,65,36,201/-. HOWEVER, THE AO FURTHER OBSERVED THAT BY WAY OF INC REASING THE SALE CONSIDERATION OF TRANSFER OF ASSETS TO ANY LIMITS, THERE WAS NOT GOING TO BE ANY TAX INCIDENCE ON M/S DELTRON LTD. AS ANY SHORT TERM CAPITAL GAIN WOULD GET ABSORBED IN THE CURRENT S WELL AS BROUGHT FORWARD L OSSES AND DEPRECATION. THE AO FURTHER OBSERVED THAT M/S DELTRON LTD. HAD EVIDE NTLY SHOWN SHORT TERM CAPITAL GAIN OF RS. 2,16,17,776/- ON TRANSFER OF LA ND, BUILDING AND PLANT AND MACHINERY TO THE ASSESSEE COMPANY, WHICH HAD BEEN T OTALLY OBSERVED IN THE 6 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 BUSINESS LOSSES AND RETURN WITH TOTAL INCOME OF NIL HAD BEEN FILED BY M/S DELTRON LTD. FOR A.Y. 2005-06. SO HE OBSERVED THAT THE ASSESSEE HAD, THROUGH THIS COLOURABLE DEVICE, BEEN ABLE TO CLAIM HIGHER D EPRECIATION ON THE INFLATED COST OF ACQUISITION. IN THE LIGHT OF THE AFORESAID FACTS, THE AO WAS SATISFIED THAT THE MAIN PURPOSE OF TRANSFER OF THESE ASSETS WAS FO R REDUCTION OF A LIABILITY TO INCOME TAX BY CLAIMING EXCESS DEPRECIATION WITH REF ERENCE TO THE ENHANCED COST OF ACQUIRING M/S DELTRON LTD. AND THEREFORE, THE EX PLANATION 3 BELOW SECTION 43(1) WAS CLEARLY ATTRACTED. THE AO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LD. VS. CTRO 15 4 ITR 148 SC AND, APPLIED EXPLANATION TO SECTION 43(1) TO ADOPT THE A CTUAL COST AT THE WRITTEN DOWN VALUE OF THE ASSETS IN THE HANDS OF THE TRANSFEROR COMPANY, NAMELY M/S DELTRON LTD. AND EXCESS DEPRECATION CLAIMED BY THE ASSESSEE WAS WORKED OUT BY THE AO AS UNDER: BLOCK WDV AS ON 1.4.2004 IN THE CASE OF M/S DELTRON LTD. COST OF ACQUISITION AS INFLATED BY THE ASSESSEE COMPANY DEPRECIATION CLAIMED BY THE ASESSEE COMPANY ON INFLATED COST DEPRECIA - TION ALLOWABLE ON THE WDV DIFFERENCE BUILDING 7,098 66,00,000 6,60,000 355 6,59,645 PLANT AND MACHINERY 59,94,066 89,66,000 11,20,750 7,49,258 3,71,492 COMPUTERS 30,533 2,88,399 86,519 9,160 77,359 FURNITURE AND FIXTURES 2,72,216 3,46,484 25,986 20,416 5,570 VEHICLES 3,91,971 14,83,455 1,48,346 39,197 1,09,14 9 TOTAL 66,95,884 1,76,84,338 20,41,601 8,18,386 12,2 3,215 7 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 THE AO OBSERVED THAT THE DEPRECATION ON BUILDING IS CLAIMED BY THE ASSESSEE AT FULL RATE, WHEREAS IT WAS ADMISSIBLE FOR HALF RATE AS ALL ASSETS OF THE ACQUIRED PLANT WERE CLAIMED TO HAVE BEEN PUT TO USE IS LESS THAN 180 DAYS. HE THEREFORE OBSERVED THAT THERE WOULD BE CORRESPONDING EXCESS C LAIM IN SUBSEQUENT YEARS FOR FULL YEARS. 4.3 THE AO OBSERVED THAT IT WAS CLEAR FROM THE AFOR ESAID TABLE THAT THE ASSESSEE HAD USED THIS DEVICE TO INFLATE THE COST O F BUILDING FROM AS LOW AS RS. 7,098/- (WDV) TO RS. 66,00,000/- BEING THE COST AS PER THE AGREEMENT WITH THE COMPANY TO SHOW CAUSE AS TO WHY NOT THE DEPRECIATIO N BE COMPUTED TAKING WDV AS ON 31.3.2004 IN THE CASE OF M/S DELTRON LTD. INSTEAD OF INFLATED PURCHASE CONSIDERATION AT WHICH COST HAD BEEN SHOWN IN THE BOOKS AND THE ATTENTION WAS INVITED TO THE PROVISION OF EXPLANATI ON 3 OF SECTION 43(1). IN REPLY THE ASSESSEE RELIED ON THE VALUATION REPORT OF THE BUILDING AND LAND AS OBTAINED BY IT FROM REGISTERED VALUER. THE AO FURTHER NOTED THAT BOTH THE COMPANIES WERE ENGAGED IN THE SAME KIND OF ELECTRONIC BUSINES S AND PLANT AND MACHINERY USED BY THEM WAS UNIQUE AND THEY WERE NOT ORDINARIL Y MARKETABLE COMMODITIES, SO AS TO HAVE ANY VALUATION OF THEIR MARKET PRICE. HE FURTHER OBSERVED THAT BOTH THE COMPANIES KNEW THAT THERE WAS NO MARKET FOR THE OLD PLANT AND MACHINERY EXCEPT FOR THE OPINION THAT THE ASSETS OF ONE COMPA NY DOING THE SAME BUSINESS WERE USED BY THE OTHER. THE AO, THEREFORE, REJECTE D THE VALUATION REPORTS 8 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 OBTAINED FROM THE REGISTERED VALUER HOLDING IT TO B E SELF SERVING DOCUMENTS. FURTHER, HE HELD THAT EXPLANATION 3 TO SECTION 43(1 ) DO NOT REQUIRE HIM TO REFER TO ANY MARKET VALUATIONS OR VALUATION REPORTS AND O NCE THE PROVISIONS WERE HELD TO BE ATTRACTED HE HAS THE POWER TO ADOPT THE FIGUR ES OF COST AS HE DEEMED FIT. HE, THEREFORE, OBSERVED THAT IN THE CONTEXT OF LETT ER AND SPIRIT OF THIS PROVISION, SINCE THE INTENT OF REDUCING TAX LIABILITY IN VARIO US YEARS BY CLAIMING HIGHER DEPRECIATION HAD BEEN PROVED IN THIS CASE, THE FAIR VALUE THAT COULD BE ADOPTED IN ANY CASE WAS THE WRITTEN DOWN VALUE AND ACCORDINGLY , THE SAME WAS ADOPTED IN ASSESSEES CASE AND EXCESS DEPRECIATION ON INFLATED COST CLAIMED BY THE AASSESSEE WAS DISALLOWED. THE AO DISCUSSED IN HIS ORDER THE LEGAL POSITION ON APPLICATION OF EXPLANATION 3 TO SECTION 43(1) IN VA RIOUS CASES AS HELD BY HONBLE APEX COURT AND HIGH COURTS. THE AO AFTER C ONSIDERING THE LEGAL POSITION AND FACTS AND CIRCUMSTANCES OF THE CASE AN D BEING UNSATISFIED WITH THE EXPLANATION OF THE ASSESSEE, MADE DISALLOWANCE OF D EPRECATION OF RS. 12,23,215/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 5 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND THE LD. CIT(A) UPHELD THE ORDER OF THE AO IN TAKING THE ACTUAL COST ON WDV BASIS BY APPLYING THE PROVISIONS OF EXPLANATION 3 T O SECTION 43(1) OF THE ACT. HOWEVER, THE AO WAS DIRECTED TO TAKE THE CORRECT FI GURES OF ALL THE ASSETS TAKEN OVER FROM M/S DELTRON LIMITED AS PER RECORDS AND TO RECALCULATE THE DIFFERENCES. 9 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 THE CIT FURTHER SPECIFICALLY HELD THAT THE ASSESSIN G OFFICER WAS JUSTIFIED IN ALLOWING DEPRECIATION FOR HALF OF THE YEAR AND NOT FOR THE ENTIRE YEAR IN RESPECT OF THE ASSETS ACQUIRED BY THE ASSESSEE COMPANY FROM M/ S. DELTRON LTD. 6 THE ASSESSEE, BEING AGGRIEVED, IS IN APPEAL BEFOR E US. 7 THE LD. AR SUBMITTED THE WRITTEN SYNOPSIS WHICH R EADS AS UNDER: THIS ADDITION NEEDS TO BE EXAMINED AND SPLIT INTO TWO ASPECT AS UNDER:- 1 DEPRECIATION ON BUILDING ALLOWED AT HALF RATES. 2 EXPLANATION 3 TO SECTION 43(1) INVOKED BY THE AO TO DETERMINE THE ACTUAL COST THE MAIN GROUNDS ON WHICH THE AO/CIT(A) HAS MADE/CO NFIRMED THE ADDITION ARE AS UNDER: 1 BOTH THE CONCERNS I.E. ASSESSEE AND M/S DELTRONO LT D MANAGEMENT AND THE DIRECTORS ARE COMMON. 2 THE FACT THAT FIXED ASSETS WERE PURCHASED BY ASSESS EE FROM M/S DELTRON LTD. AFTER THE PROBE DURING THE ASSESSMENT PROCEEDI NGS AND NO SUCH DETAILS WERE FURNISHED IN AUDIT REPORT OR PAPERS ENCLOSED WITH T HE RETURN. 3 THE WDV AS PER INCOME TAX ACT IN THE BOOKS OF ACCOU NTS OF THE SELLER COMPANY WAS VERY LESS AND ASSESSEE PURCHASED THESE ASSETS AT HIGHER VALUE ONLY TO GET HIGHER AMOUNT OF DEPRECIATION. 4 THE AO/CIT(A) HAS RELIED UPON FEW CASES TO JUSTIFY THE ADDITION AS PER THE RESPECTIVE ORDERS. ASSESSEES SUBMISSIONS: 1 FIRSTLY, IT IS CLARIFIED THAT M/S DELTRON LTD. IS A LISTED PUBLIC LTD. COMPANY. ALL THE NECESSARY APPROVALS OF SHAREHOLDERS AND APP ROVAL OF SEBI FOR SELLING ANY BUSINESS HAS BEEN OBTAINED. ALL NECESSARY DISCLOSURES AS WERE REQUIRED UNDER L AW WERE MADE IN THE AUDITED ACCOUNTS OF DELTRON LTD. AS WOULD BE SEEN F ROM ITS BALANCE SHEET IN PARTICULAR AT PAGE 29, 30 AND 43 OF THE PAPER BOOK THEREFORE, ANY ALLEGATION THAT ASSESSEE (AS A CLOSE LY HELD COMPANY) WILL OVERPAY TO A PUBLIC LTD. COMPANY IS BEYOND PAYMENT IS MADE BY A PUBLIC LTD. COMPANY TO 10 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 A CLOSELY HELD COMPANY, THE ALLEGATION COULD HAVE S MELLED FOUL PLAY. NO PRUDENT PERSON WOULD GET INTO A TRANSACTION WHERE HE HAD TO OVER PAY FROM HIS PERSONAL ACCOUNT, I.E. CLOSELY HELD COMPANY TO A PUBLIC ACCO UNT. HENCE, THE ASSUMPTION OF THE AO/CIT CONCERNS, THE TRANSACTION IS NOT AT ARM S LENGTH IS MISCONCEIVED AND ERRONEOUS. INFACT, THE AO/CIT(A) HAS MISCONSTRUED THE REQUIREMENTS OF ARMS LENGTH PRINCIPLES WHILE JUDGING THIS TRANSACTION. 2 AS HAS BEEN CLARIFIED THAT THE TRANSACTION OF SAL E OF THE BUSINESS AS A GOING CONCERN WAS BASED UPON A CERTIFICATE OF TRANS ACTION WAS UNDERTAKEN BASED ON SUCH VALUATION REPORT. THIS VALUATION WAS ABSOL UTELY NECESSARY BOTH FROM ASSESSEES AS WELL AS DELTRONS POINT OF VIEW BECAU SE THE SALE WAS REQUIRED TO BE APPROVED BY THE SHAREHOLDERS OF DELTRON LTD. IN AB SENCE OF ANY DEFECT OR EVEN AN ALLEGATION OF ANY DEFECT IN SUCH VALUATION, THE AO/CIT(A) WERE NOT JUSTIFIED IN IGNORING THE SAME AND ADOPTING THE W.D.V. IN THE BOOKS OF DELTRON LTD. AS THE ACTUAL COST UNDER SECTION 43(1) OF THE I.T. ACT READ WITH EXPLANATION 3. A DIRECT JUDGMENT ON THIS ISSUE IS ASHWIN VANASPATI I NDUSTRIES VS. CIT 255 ITR 26 (GUJ). (COPY ENCLOSED) 3 THE ALLEGATION OF THE AO THAT ASSESSEE DID NOT MA KE DISCLOSURE OF THIS TRANSACTION AND IT CAME TO BE PROBED BY HIM IS ALSO FACTUALLY INCORRECT. THERE IS A DISCLOSURE IN DIRECTORS REPORT THAT ASSESSEE HAS ACQUIRED BUSINESS OF DELTRON LTD. AS A GOING CONCERN, PB PAGE 2. SIMILARLY IN S CHEDULE T OF BALANCE SHEET BEING NOTES ON ACCOUNTS AS NOTE NO. 10 ASSESSEE COM PANY HAS DISCLOSED THAT IT HAS PURCHASED ELECTRONIC BUSINESS OF M/S DELTRON AT A NET CONSIDERATION OF RS. 7.54 CRORES-PB PAGE 22 THUS, THE BASIC ASSUMPTION OF AO THAT ASSESSEE DID NOT DISCLOSE THE TRANSACTION IS FACTUALLY INCORRECT. THE BALANCE SHEET WAS FILE D WITH RETURN OF INCOME FILED ON 28.10.2005 4 THERE IS NOT EVEN AN IOTA OF EVIDENCE THAT SOMETH ING MORE OR LESS HAS BEEN PAID OR PASSED THAN THE ACTUAL CONSIDERATION S TATED IN THE GOVERNMENT BASED ON A VALUATION OF ASSETS BY A GOVERNMENT APPROVED V ALAUER. THE FINDINGS OF THE AO ARE JUST SURMISES AND CONJECTURES NOT SUPPORTED BY ANY EVIDENCE. VALUATION REPORT OF THE GOVERNMENT APPROVED VALUER IS AVAILAB LE AT PAGES 54 TO 68 5 WHILE REDUCING THE DEPRECATION ON BUILDING THE AO HAS ALSO ALLEGED THAT THERE IS NO EVIDENCE WHEN THE BUILDING WAS OCCUPIED . IT IS RESPECTFULLY SUBMITTED THAT SUCH AN OBSERVATI ON IS TOTALLY ERRONEOUS. THE EXISTING BUSINESS WAS PURCHASED AS A GOING CONCERN ALONGWITH BUILDING. THERE WAS NO SPECIAL FORMALITIES REQUIRED FOR TAKING OVER BUILDING: THE BUILDING WAS ALREADY HOUSING ALL OTHER ASSETS I.E. PLANT AND MAC HINERY ETC. SO, THE ALLEGATION IS TOTALLY OUT OF CONTEXT. 6 EXPLANATION 3 OF SECTION 43(1) REQUIRES THE AO TO DETERMINE THE ACTUAL COST AT SUCH AN AMOUNT AS THE AO MAY DETERMINE HAVI NG REGARD TO ALL THE 11 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 CIRCUMSTANCES OF THE CASE. THE AO HAS ADOPTED WDV OF THE PREVIOUS OWNER, I.E. DELTRON LTD., WHICH IS HIGHLY ARBITRARY. IT W AS EXPLAINED TO AO/CIT(A) THAT THE ASSETS TRANSFERRED BY DELTRON LTD. BELONGED TO A UNIT WHICH WAS ENTITLED TO 100% DEDUCTION U/S 35(1)(IV) OF THE ACT, I.E. THE C OST IN THE HANDS OF DELTRON WAS MOST NEGLIGIBLE OR ZERO. THE MOOT QUESTION IS WOUL D DELTRON HAD SOLD IT AT THE SAME PRICE ON UNRELATED PARTY AT THE SAME COST? TH E ANSWER IS YES BECAUSE DELTRON LTD. HAD GOT THE VALUATION OF THESE ASSETS DONE FROM A GOVERNMENT APPROVED VALAUER. DELTRON LTD., AS ALREADY CLARIFI ED, IS A PUBIC LIMITED LISTED COMPANY, AND WHEREAS THE ASSESSEE IS A CLOSELY HELD COMPANY. ITS ACTIONS WERE ACCOUNTABLE AND SUBJECT TO SCRUTINY OF VARIOUS AGEN CIES INCLUDING IT SPUBLIC SHAREHOLDERS. THE AO HAS NOT DONE ANY EXERCISE WOR TH INVOKING THE PROVISIONS OF EXPLANATION 3 OF SECTION 43(1) OF THE ACT. HE H AS MERELY ADOPTED THE W.D.V. IN THE BOOKS OF DELTRON LTD., AS AGAINST THE ACTUAL PRICE PAID BY THE ASSESSEE TO M/S DELTRON FOR PURCHASE OF THE ASSETS AS PER THE V ALUATION REPORT. WITHOUT PREJUDICE, CIT(A) FAILED TO IGNORE VARIOUS SUBMISSION MADE BEFORE HERE AS UNDER: THE ASSESSEE HAD SUBMITTED THAT THE COST OF ACQUISI TION OF ASSETS PURCHASED BY THE ASSESSEE WAS SUBSTANTIALLY HIGHER THAN THE WDV OF ASSETS AS ON 1.4.2004 IN THE HANDS OF DELTRON LTD., BECAUSE IT INCLUDED ASSE TS ON WHICH DELTRON LTD. HAD BEEN ALLOWED 100% DEDUCTION U/S 35(1)(IV)/35(2) AS EXPENDITURE ON SCIENTIFIC RESEARCH CARRIED ON BY THE DELTRON LTD; AND AS SUCH , THESE ASSETS HAD NIL COST U/S 43(1) READ WITH EXPLANATION 1. THE COST OF SUCH AS SETS IN THE HANDS OF DELTRON LTD., WHICH HAD APPEARED AT NIL VALUE, WAS AS UNDER :- I) BUILDING RS. 75,91,127 II) PLANT & MACHINERY RS. 5,06,12,466 III) COMPUTERS RS. 16,94,379 IV) FURNITURE RS. 2,12,182 R. 6,01,10,154 THE ASSESSEE HAD ALSO PRODUCED THE RELEVANT ASSESSM ENT ORDERS IN SUPPORT OF ITS SUBMISSIONS. IT WAS THEREFORE BUT NATURAL THAT THE SE ASSETS OF RS. 6 CRORES THOUGH IN EXISTENCE, WILL NOT APPEAR IN THE WDV SCHEDULE O F ASSETS (I.T. CHART) AS ON 1.4.2004 RELIED UPON BY THE AO, FOR HOLDING THAT TH E VALUE AT WHICH THE SALE HAS TAKEN PLACE IS HIGHER THAN THE WDV AS ON 1.4.2004. THE ASSESSEE HAD ALSO RAISED CERTAIN OTHER ISSUES CONNECTED TO THE DETERM INATION OF ACTUAL COST FOR THE PURPOSE OF EXPLANATION 3 TO SECTION 43(1), WHICH WE RE REPRODUCE IN THE APPELLATE ORDER AS PART OF SUBMISSIONS OF THE ASSESSEE, BUT T HERE WAS NO DISCUSSION OR DECISION THEREON AS WELL BY THE CIT(A). CIT(A) HAS RESTRICTED HERSELF TO EXPLANATION 3 TO SECTION 43(1) OF THE I.T. ACT. FO LLOWING ISSUES ARISE FOR CONSIDERATION:- 1) WHETHER THE ASSETS IN RESPECT OF WHICH 100% WRIT E OFF HAS BEEN ALLOWED TO DELTRON LTD. U/S 35(1)(IV)/35(2) THE ACTUAL COST OF WHICH WAS THEREFORE NIL IN VIEW OF EXPLANATION 1 TO SECTION 43(1), THE ACTUAL COST TO THE BUYER WILL STILL BE 12 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 NIL IN VIEW OF EXPLANATION 3 TO SECTION 43(1), AS T HE AO HAS JUST GONE BY THE WDV OF THE ASSETS AS PER INCOME TAX RULES AS ON 31. 3.2004 I THE CASE OF DELTROON LTD. THESE ASSETS, THOUGH EXISTING AND DO NOT APPEAR IN THE DEPRECIATION CHART AS PER INCOME TAX RULES, ALTHOUG H THESE ASSETS DO APPEAR IN THE SCHEDULE OF DEPRECATION CHART OF DELTRON LTD. U NDER THE COMPANIES ACT. (SEE BALANCE SHEET AS ON 31.3.2004).-P.B 39 2) THE ASSESSEE IN ITS SUBMISSIONS SPECIFICALLY POI NTED OUT THAT RS. 7,098/- IS THE VALUE OF LEASE HOLD IMPROVEMENTS OF THE PROP ERTY AND IT IS NOT THE WDV OF THE BUILDING B-96, PHASE-III, INDUSTRIAL AREA, MOHA LI AS HELD BY THE AO-PB-A3 3) THE ASSESSEE HAD PURCHASED BUILDING B-96, PHASE- III INDUSTRIAL AREA, MOHALI HAVING A COVERED AREA OF 14346 SQ.FT. AT A V ALUE OF RS. 66 LAKHS, WHICH HAD NIL COST ON ACCOUNT OF DEDUCTION ALLOWED TO DEL TRON LTD. U/S 35(I)(IV)(35)(2).-PBA-3 4) EXPLANATION 3 TO SECTION 43(1) SPECIFICALLY PROV IDES THAT THE ASSESSING OFFICER SHALL DETERMINE THE ACTUAL COST HAVING REGA RD TO THE CIRCUMSTANCES OF THE CASE, WHERE THE ASSESSING OFFICER IS OF THE VIEW TH AT THE SALE AT THE HIGHER VALUE WAS SHOWN TO ENABLE THE ASSESSEE TO CLAIM HIGHER DE PRECIATION. THE WDV OF THE ASSETS CANNOT BY ANY STRETCH OF IMAGINATION BE THE ACTUAL COST FOR THE PURPOSE OF EXPLANATION 3 TO SECTION 43(1). THE EXPLANATION 3 DOES NOT PROVIDE THE WDV OF SUCH ASSETS TO BE THE ACTUAL COST, BUT IT WAS LEFT TO THE WISDOM OF THE AO TO DETERMINE THE ACTUAL COST HAVING REGARD TO THE CIRC UMSTANCES OF THE CASE. IT MAY BE NOTED THAT THE LEGISLATURE IN ITS WISDOM HAD SPE CIFICALLY STATED THAT WDV SHALL BE THE ACTUAL COST IN OTHER EXPLANATIONS, EXCEPT IN EXPLANATION 3. PLEASE REFER TO EXPLANATION 4, 4A, 6, 7 & 7A AND 2 OF SECTION 43(1) . 5) WHETHER THE EXPERT OPINION OF GOVT. APPROVED VAL AURS AS REGARDS THE VALUE OF THE BUILDING AND PLANT AND MACHINERY PURCH ASED BY THE ASSESSEE CAN BE DISREGARDED/OVERLOOKED WITHUT ANY DISCUSSION OR REA SONING THEREON BY THE AO. THE AO CANNOT BE SAID TO BE AN EXPERT IN THE MATTER OF DETERMINING THE ACTUAL COST FOR THE PURPOSE OF EXPLANATION 3 TO SECTION 43 (1)-COPY OF VALUATION REPORTS ARE AVAILABLE AT PB 54 TO 68. 6 THE CASE LAWS RELIED UPON BY THE AO RELATE TO DIS SOLUTION OF PARTNERSHIP FIRM WITHIN A SHORT TIME OF PERIOD OF THEIR CREATIO N FOR ENHANCING THE VALUE OF THE ASSETS CONSIDERABLY BEFORE TRANSFER OF SUCH ASSETS ON DISSOLUTION. IN ALL OF THESE CASES THE FACTS ARE DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEES CASE. M/S DELTRON LTD. IS NOT A PARTNERSHIP FIRM, BUT IS A QU OTED COMPANY (PUBLIC LTD. CO.), WHICH HAS BEEN IN EXISTENCE FOR OVER TWO DECADES. THEREFORE, THE RELIANCE BY THE AO ON THESE CITATIONS IS TOTALLY MISPLACED AS THE F ACTS OF THE ASSESSEES CASE ARE SUBSTANTIALLY DIFFERENT. M/S DELTRON LTD. HAD BEEN ALLOWED 100% DEDUCTION AS EXPENDITURE UNDER THE SPECIAL PROVISIONS IN RESPECT OF ITS COST OF ASSETS VALUED AT RS. 6 CRORES APPROXIMATELY. THESE ASSETS, THEREFORE , COULD NOT APPEAR IN THE DEPRECATION CHART AS PER INCOME TAX RULES. BUT IT DOES NOT MEAN IT HAS NO VALUE. 13 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 (7) THE ASSESSEE HAD FILED A DEPRECATION CHART AS O N 31.3.2004 (FIXED ASSETS SCHEDULE) FORMING PART OF AUDITED BALANCE SHEET UND ER THE COMPANIES ACT FOR COMPARISON WITH THE VALUE AT WHICH THE ASSETS WERE PURCHASED BY THE ASSESSEE. THUS, FIXED ASSETS SCHEDULE INCLUDES THE ASSETS ON WHICH 100% DEDUCTION HAS BEEN EARLIER ALLOWED UNDER SECTION 35(1)(IV)/35(2) AS DEDUCTION IN RESPECT OF (R&D). IT WAS SUBMITTED THAT THIS SCHEDULE CLEARLY SHOWS THAT THE PRICE AT WHICH THE ASSETS WERE PURCHASED WERE REASONABLE AND COULD NOT BE BRUSHED ASIDE WITHOUT ANY COMMENT. FIXED ASSET SCHEDULE AND THE PURCHASE VALUE IS REPRODUCED AGAIN-PB-A4 PARTICULARS WDV AS ON 31.3.2004 (UNDER COMPANIES ACT) VALUE AT WHICH TAKEN OVER BY ASSESSEE BUILDING 74,25,264 66,00,000 PLANT & MACHINERY 3,71,66,624 89,66,000 COMPUTERS 82,020 69,499 FURNITURE & FIXTURE 3,76,317 3,46,484 VEHICLES 5,95,569 5,11,566 OFFICE AND OTHER EQUIPMENTS 14,74,265 14,23,115 TOTAL 4,71,20,059 1,79,16,664 8) THE ASSESSEE IS ALSO FILING STATEMENT OF DEPRECA TION CHART AS PER INCOME TAX RULES IGNORING THE SPECIAL DEDUCTION U/S 35(1)( IV)/35(2), AS IF SUCH DEDUCTION WAS NOT ALLOWED FOR DETERMINING THE COMPARATIVE FIG URES OF WDV AS ON 1.4.2004 IN THE HANDS OF DELTRON LTD. WITH THE VALUE AT WHI CH ALL THE ASSETS INCLUDING THOSE WHICH HAD NIL VALUE, WHICH HAVE BEEN PURCHASED BY T HE ASSESSEE TO RECONSIDER AS TO WHETHER THE PROVISIONS OF EXPLANATION 3 TO SECTI ON 43(1) ARE ATTRACTED IN THE CASE OF THE ASSESSEE. STATEMENT OF WDV WITHOUT TAKING INTO CONSIDERATION OF SECTION 35(1)(VI) AND THE VALUE AT WHICH THE ASSETS WERE TAKEN OVER BY THE AS SESSEE IS AS UNDER: PARTICULARS WDV AS ON 31.3.2004 (UNDER IT ACT WITHOUT TAKING INTO CONSIDERATION 100% DEP. AS (R&D) VALUE AT WHICH TAKEN OVER BY ASSESSEE BUILDING 36,68,570 66,00,000 LEASEHOLD IMPROVEMENTS 7,098 ------- PLANT AND MACHINERY 1,66,59,047 89,66,000 COMPUTERS 61,446 69,499 FURNITURE AND FIXTURE 3,63,553 3,46,484 VEHICLES 3,91,971 5,11,566 ELECTRICAL INSTALLATION 95,852 14,23,115 WATER COOL 29 OTHER EQUIPMENTS 3,58,164 INDUSTRIAL INSTALLATION 615 14 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 TOTAL 2,16,06,346 1,79,16,664 COMBINED COMPARATIVE STATEMENT SHOWING THE WDV AS P ER COMPANIES ACT, WDV AS PER I.T. ACT (WITHOUT TAKING EFFECT OF 100% DEP. AS (R&D) AND THE VLAUE AT WHICH THE ASSETS WERE TAKEN OVER BY THE ASSESSEE TO ESTABLISH THE REASONABLENESS OF THE VALUE OF THE ASSETS TAKEN OVER PARTICULARS WDV AS PER COMPANIES ACT AS ON 31.3.2004 WDV AS ON 31.3.2004 (UNDER IT ACT WITHOUT TAKING INTO CONSIDERATION 100% DEP. AS (R&D) VALUE AT WHICH TAKEN OVER BY ASSESSEE BUILDING 74,25,264 36,68,570 66,00,000 LEASEHOLD IMPROVEMENTS -------- 7,098 -------- PLANT AND MACHINERY 3,71,66,624 1,66,59,047 89,66,0 00 COMPUTERS 82,020 61,446 69,499 FURNITURE AND FIXTURE 3,76,317 3,63,553 3,46,484 VEHICLES 5,95,569 3,91,971 5,11,566 ELECTRICAL INSTALLATION -------- 95,852 14,23,115 WATER COOL -------- 29 OTHER EQUIPMENTS 14,74,265 3,58,164 INDUSTRIAL INSTALLATION -------- 615 TOTAL 4,71,20,059 2,16,06,346 1,79,16,664 IT IS REQUESTED THAT THE ABOVE ASPECTS OF THE CASE WHICH HAD REMAINED UNCONSIDERED MAY BE EXAMINED AND YOUR HONOUR GIVE F INDING/DECISION THEREON. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF T HE LOWER AUTHORITIES BELOW. 8 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED T HE RECORDS. WE FIND THAT THE ASSESSEE COMPANY, A PRIVATE LIMITED COMPAN Y, HAS ACQUIRED ELECTRONIC BUSINESS FROM A PUBLIC LIMITED COMPANY KNOWN AS M/S DELTRON LIMITED AS A GOING CONCERN VIDE AGREEMENT DATED 27.9.2004 FOR A CONSIDERATION OF RS. 7.54 CRORE. WE FIND THAT IN THE ASSESSMENT ORDER, THE A O HAS OBSERVED THAT THE AFORESAID FACT OF PURCHASE OF FIXED ASSETS WAS DISC LOSED BY THE AR ONLY AFTER THE 15 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 PROBE BY HIM DURING THE ASSESSMENT PROCEEDINGS AND NO SUCH DETAILS HAVE BEEN FURNISHED IN ANY MANNER IN THE AUDIT REPORT PAPERS ENCLOSED WITH THE RETURN OF INCOME. HE HAS ALSO NOTICED THAT BOTH THE COMPANIE S DEAL IN ELECTRONIC BUSINESS AND HAVE SAME ADDRESS AT C-120, NARAINA INDUSTRIAL AREA AND RUN UNDER THE SAME MANAGEMENT AS THE DIRECTORS/SHAREHOLDERS ARE A LSO COMMON. WE FURTHER FIND THAT, THE AO OBSERVES THAT M/S DELTRON LIMITED FOR A.Y. 2005-06 HAS SHOWN NET CURRENT LOSS OF RS. 3,39,17,585/- AND IT HAS BROUGHT FORWARD DEPRECIATION OF RS. 46,53,620/-. SO ACCORDING TO T HE AO BY THE SAID TRANSACTION THOUGH M/S DELTRON LIMITED HAD MADE A SHORT TERM CA PITAL GAIN OF RS. 2,16,17,776/- BUT THE SAID SHORT TERM CAPITAL GAIN GETS ABSORBED IN ITS BUSINESS LOSSES AND THE SAID COMPANY HAS RETURNED TOTAL INCO ME OF NIL FOR THE RELEVANT ASSESSMENT YEAR 2005-06.FURTHER, THE AO OBSERVED TH AT, BOTH THE COMPANIES ARE ENGAGED IN THE SAME KIND OF ELECTRONIC BUSINESS & PLANT AND MACHINERY USED BY THEM IS UNIQUE AND THEY ARE NOT ORDINARILY MARKE TABLE COMMODITIES, SO AS TO HAVE ANY VALUATION OF THEIR MARKET PRICE. BOTH THE COMPANIES KNEW THAT THERE IS NO MARKET FOR THE OLD PLANT AND MACHINERY EXCEPT FO R THE OPINION THAT THE ASSETS OF ONE COMPANY DOING THE SAME BUSINESS ARE USED BY THE OTHER. IN THE ABSENCE OF ANY MARKET VALUATIONS THE VALUATIONS, REPORT OBT AINED FROM THE REGISTERED VALUER ARE ONLY SELF SERVICE DOCUMENTS AND THEREFOR E, REJECTED AS SUCH. IN THE SAID FACTUAL BACKDROP, THE AO COMES TO THE CONCLUSI ON THAT THE MAIN PURPOSE OF 16 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 TRANSFER OF THESE ASSETS WAS FOR REDUCTION OF A LIA BILITY OF INCOME TAX BY EXCESS DEPRECIATION WITH REFERENCE TO THE ENHANCED COST AN D, THEREFORE EXPLANATION 3 TO SECTION 43(1) GETS ATTRACTED. ACCORDINGLY, THE AO H AS TAKEN THE WDV OF THE ASSETS AS PER EXPLANATION 3 OF SECTION 43(1) OF THE ACT FROM THE BOOKS OF ACCOUNT OF THE SELLER COMPANY AND IGNORED THE PRICE PAID BY THE ASSESSEE ON WHICH THE ASSESSEE HAD CLAIMED DEPRECIATION. HE HAS NOTED THAT ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 20,41,601/- WHEREAS, AC CORDING TO HIM, DEPRECATION ALLOWABLE ON THE WDV OF THESE ASSETS IS ONLY RS. 8, 18,386/- AND THE DIFFERENCE COMES TO RS. 12,23,215/-. IN ARRIVING AT THE ABOVE FIGURE OF RS. 8,18,386/-, THE ASSESSING OFFICER HAS HELD THAT THE ASSETS ACQUIRED BY THE APPELLANT COMPANY WERE TO BE USED FOR LESS THAN 180 DAYS AND THEREFOR E, THE ASSESSEE WAS ENTITLED TO DEPRECIATION FOR ONLY HALF O THE YEAR AND NOT FOR T HE ENTIRE YEAR. HOWEVER, WE FIND THAT BEFORE THE CIT(A), THE AR HAD POINTED OUT CERTAIN DIFFERENCES IN THE FIGURES IN THE CHART OF AO, WHICH ACCORDING TO HIM, DO NOT TALLY WITH THE CONSIDERATION STATED IN THE AGREEMENT DATED 27.9.20 04. THE LD. CIT(A) HAD DIRECTED THE AO TAKE THE CORRECT FIGURES OF ASSETS TAKEN OVER FROM M/S. DELTRON LTD. AS PER RECORDS AND RECALCULATE THE DIFFERENCES , AND, RECOMPUTED THE DISALLOWANCE ACCORDINGLY. 9 SECTION 43(1) READS AS UNDER: 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLE SS THE CONTEXT OTHERWISE REQUIRES 17 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 (1) 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASS ETS 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: [PROVIDED THAT WHERE THE ACTUAL COST OF AN ASSET, BEING A MOTOR CAR WHICH IS ACQUIRED BY THE ASSESSEE AFTER THE 31ST DA Y OF MARCH, 1967, [BUT BEFORE THE 1ST DAY OF MARCH, 1975,] AND IS USED OTHERWISE THAN IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURIS TS, EXCEEDS TWENTY- FIVE THOUSAND RUPEES, THE EXCESS OF THE ACTUAL COST OVER SUCH AMOUNT SHALL BE IGNORED, AND THE ACTUAL COST THEREOF SHALL BE TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES.] EXPLANATION 1.WHERE AN ASSET IS USED IN THE BUSINE SS AFTER IT CEASES TO BE USED FOR SCIENTIFIC RESEARCH RELATED TO THAT BUSINESS AND A DEDUCTION HAS TO BE MADE UNDER [CLAUSE (II) OF SUB -SECTION (1)] OF SECTION 32 IN RESPECT OF THAT ASSET, THE ACTUAL COST OF THE ASSET TO THE ASSESSEE SHALL BE THE ACTUAL COST TO THE ASSESSEE A S REDUCED BY THE AMOUNT OF ANY DEDUCTION ALLOWED UNDER CLAUSE (IV) O F SUB-SECTION (1) OF SECTION 35 OR UNDER ANY CORRESPONDING PROVISION OF THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922). [EXPLANATION 2.WHERE AN ASSET IS ACQUIRED BY THE A SSESSEE BY WAY OF GIFT OR INHERITANCE, THE ACTUAL COST OF THE ASSE T TO THE ASSESSEE SHALL BE THE ACTUAL COST TO THE PREVIOUS OWNER, AS REDUCE D BY (A) THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED UND ER THIS ACT AND THE CORRESPONDING PROVISIONS OF THE INDIAN INCOME-T AX ACT, 1922 (11 OF 1922), IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1ST DAY OF APRIL, 1988; AND (B) THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR A FTER THE 1ST DAY OF APRIL, 1988, AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLOCK OF ASSETS.] EXPLANATION 3.WHERE, BEFORE THE DATE OF ACQUISITIO N BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY O THER PERSON FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND THE [AS SESSING] OFFICER IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUCH ASSETS, DIRECTLY 18 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 OR INDIRECTLY TO THE ASSESSEE, 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 SUC H AN AMOUNT AS THE [ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE 4 [JOINT COMMISSIONER], DETERMINE HAVING REGARD TO ALL THE C IRCUMSTANCES OF THE CASE. 10 THEREFORE, SUB-SECTION (1) OF SECTION 43 OF THE ACT LAYS DOWN THAT ACTUAL COST IN THE HANDS OF AN ASSESSEE MEANS THE ACTUAL C OST OF THE ASSETS AS REDUCED BY THAT PORTION OF THE COST WHICH MAY HAVE BEEN MET DI RECTLY OR INDIRECTLY BY ANY OTHER PERSON. EXPLANATION 3 TO THE SAID SUB-SECTION STIPULATES THAT:- I) THE ASSETS WHICH ARE ACQUIRED BY THE ASSESSEE WE RE USED BY ANY OTHER PERSON BEFORE THE DATE OF ACQUISITION; II) THE INCOME-TAX OFFICER ARRIVES AT OBJECTIVE SATISFA CTION THAT SUCH ASSETS WERE TRANSFERRED WITH THE MAIN PURPOSE OF RE DUCING TAX LIABILITY BY CLAIMING DEPRECIATION WITH REFERENCE T O ENCHANCED COST. III) THEN THE INCOME- TAX OFFICER IS EMPOWERED TO DETERM INE THE ACTUAL COST HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 11 SO FROM A PERUSAL OF THE AFORESAID PROVISION, WE FIND THAT THE AO NEEDS TO SATISFY THAT THE MAIN PURPOSE OF THE TRANSFER OF SU CH ASSETS DIRECTLY OR INDIRECTLY TO THE ASSESSEE WAS FOR THE REDUCTION OF A LIABILIT Y OF INCOME TAX BY CLAIMING DEPRECATION WITH REFERENCE TO AN ENHANCED COST. TH EN ONLY, THE AO CAN INVOKE EXPLANATION 3 TO FIX THE ACTUAL COST. SO, THEREFOR E, THE REQUIREMENT OF LAW IS THAT 19 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 THE MAIN PURPOSE OF THE TRANSFER OF ASSETS WAS FOR THE REDUCTION OF A LIABILITY TO INCOME TAX WITHOUT SATISFYING THE SAME, THE AO CANN OT INVOKE EXPLANATION 3 TO SECTION 43(1). 12 HERE, IN THIS CASE, WE FIRSTLY NOTICE THAT THE A OS OBSERVATION THAT NEITHER IN THE AUDIT REPORT OR IN THE PAPERS FILED ALONGWIT H THE RETURN THE ACQUISITION WAS NOT MENTIONED, IS NOT CORRECT. WE FIND THAT IN THE DIRECTORS REPORT, IT HAS REPORTED THAT THE ASSESSEE HAD ACQUIRED BUSINESS OF DELTRON LIMITED AS A GOING CONCERN (PAPER BOOK PAGE 2). SIMILARLY, WE FIND TH AT IN SCHEDULE T OF BALANCE SHEET BEING NOTES ON ACCOUNTS AS NOTE 10, ASSESSEE COMPANY HAS DISCLOSED THAT IT HAS PURCHASED ELECTRONIC BUSINESS OF M/S DELTRON LTD. AT A NET CONSIDERATION OF RS. 7.54 CRORES (PAPER BOOK PAGE 22). THUS, WE FIND THAT THE OBSERVATION OF THE AO THAT THE ASSESSEE DID NOT DISCLOSE THE TRANSACTI ON IS FACTUALLY INCORRECT. 13 WE FURTHER NOTICE THAT THE APPELLANT COMPANY AND M/S DELTRON LTD. HAD ENTERED INTO AN AGREEMENT DATED 27.9.2004, RELEVANT CLAUSES OF WHICH ARE AS UNDER:- AND WHEREAS DELTRON LTD. IS ALSO IN ELECTRONICS BU SINESS AND DOES NOT HAVE SUFFICIENT FINANCIAL RESOURCES TO RUN THE BUSINESS AS A PROFITABLE UNIT NOW AND IN FUTURE AS IT NEEDS TO CO NTINUOUSLY INVEST HEAVILY IN R & D AND IN DEVELOPING PROCESS CAPABILI TIES TO KEEP PACE WITH THE ADVANCING TECHNOLOGIES, .. 1. THAT THE ENTIRE ELECTRONICS BUSINESS OF DELTRON LTD . IS AGREED TO BE TAKEN OVER BY CDIL AT A NET CONSIDERATION AS DES CRIBED IN ANNEXURE I TO THIS AGREEMENT MENTIONED THEREIN WITH EFFECT FROM 30 TH SEPTEMBER, 2004. 20 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 2. .. 3. THAT IN VIEW OF THE TRANSFER OF THE ENTRIES ELECTRO NICS BUSINESS OF DELTRON LTD. AS GOING CONCERN TO CDIL AND IN ORD ER TO MAINTAIN CONTINUITY OF BUSINESS WITH THE CUSTOMERS AFTER THE TRANSFER OF BUSINESS, CDIL SHALL BE ENTITLED TO USE THE NAME D ELTRON IN ALL ITS FUTURE BUSINESS. 4. THAT LIABILITIES OF DELTRON LTD. EXCEPT STATUTORY D UES, OUTSTANDING LIABILITIES, BONUS PAYABLE, MEDICAL BEN EFITS PAYABLE, STALE CHEQUES, UNPAID SALARY, DIVIDEND, INTEREST PAYABLE, MONIES RECEIVED AGAINST WARRANTS, IN RESPECT OF THE SAID BUSINESS P RIOR TO THE TAKE OVER DATE, SHALL BE TAKEN OVER BY CDIL. 8. .. A) THE TRANSFER OF ALL THE PLANT & MACHINERY AND AL L THE MATERIAL AS APPEARING IN THE BOOKS OF DELTRON LTD. AS ON 30 TH SEPTEMBER 2004 WITHOUT PAYMENT OF EXCISE DUTY. 14 A PERUSAL OF THE ABOVE AGREEMENT MAKES IT ABUNDA NTLY CLEAR THAT THE PURPORT OF THE TRANSFER OF ELECTRONIC BUSINESS FROM THE PUBLIC LIMITED COMPANY NAMELY M/S. DELTRON LTD. TO THE ASSESSEE WAS ON ACC OUNT OF LACK OF SUFFICIENT FINANCIAL SOURCE TO RUN THE SAID BUSINESS AS A PROF ITABLE UNIT BY THE PUBLIC LIMITED COMPANY. THIS PURPOSE AS STATED IN THE AGREEMENT HA S NOT BEEN FOUND TO BE REJECTED, COMMENTED OR DISPUTED BY ANY OF THE AUTHO RITIES BELOW. THERE IS NO MATERIAL TO DISPUTE THE ASSERTION THAT M/S. DELTRON LTD., A PUBLIC LIMITED COMPANY HAD RESOURCES TO INVEST HEAVILY IN R&D OR D EVELOP PROCESS CAPABILITY TO KEEP PACE WITH THE ADVANCING TECHNOLOGY. NO DOUB T, THE GROUND OF COMMON MANAGEMENT AND COMMON OFFICE IS A RELEVANT CONSIDER ATION BUT THE SAME IS NOT 21 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 OF CONCLUSIVE NATURE. THE PRIME REQUIREMENT UNDER E XPLANATION TO SECTION 43(1) OF THE ACT IS THAT THE TRANSFER OF A GOING CONCERN HAS BEEN EFFECTED TO DEFRAUD THE REVENUE AND SUCH DEFRAUD HAD BEEN ATTEMPTED BY CLAI MING DEPRECIATION AT AN ENHANCED COST. WE HAVE ALREADY STATED ABOVE THAT HE RE WAS A CASE OF TRANSFER BY A PUBLIC LIMITED COMPANY AND THE PURPOSE STATED IN THE AGREEMENT IS NOT A MATTER OF DISPUTE. THE ASSESSING OFFICER IN THE ORDER HAS OPINED THAT THE ASSETS AS REFLECTED IN THE BOOKS OF DELTRON LTD AS ON 1.4.200 4 AT RS. 66,95,884/- WERE TRANSFERRED FOR A CONSIDERATION OF RS. 1,76,84,338 /- THOUGH THE APPELLANT CLAIMS THAT SUCH A FINDING IS INCORRECT. IT HAS BEEN P OINTED OUT THAT DELTRON LTD. IS A PUBLIC LIMITED COMPANY AND HAD BEEN ALLOWED 100% DE DUCTION UNDER SECTION 35(1)(IV)/35(2) OF THE ACT AS EXPENDITURE AND AS SU CH, THERE WAS CERTAIN ASSETS WHICH APPEARED AT NIL COST IN THE BOOKS OF DELTRON LTD. IT WAS HOWEVER STATED THAT SUCH ASSETS WERE APPEARING IN THE BALANCE SHEE T PREPARED UNDER THE COMPANIES ACT AS ON 31.3.2004 AT RS. 4,71,20,059/- AND IF THE DEDUCTION UNDER SECTION 35(1)(IV)/35(2) IS IGNORED, WDV OF SUCH ASS ETS AS ON 31.3.2004 WOULD STAND AT RS 2,16,06,346/-. THE CUMULATIVE POSITION WHICH EMERGES IS AS UNDER: PARTICULARS WDV AS PER COMPANIES ACT AS ON 31.3.2004 WDV AS ON 31.3.2004 (UNDER IT ACT WITHOUT TAKING INTO CONSIDERATION 100% DEP. AS (R&D) VALUE AT WHICH TAKEN OVER BY ASSESSEE VALUE ADOPTED BY THE AO FOR INVOKING EXPLANATION 3 TO SECTION 43(1) 22 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 BUILDING 74,25,264 36,68,570 66,00,000 66,00,000 LEASEHOLD IMPROVEMENTS -------- 7,098 -------- ----- PLANT AND MACHINERY 3,71,66,624 1,66,59,047 89,66,000 89,66,000 COMPUTERS 82,020 61,446 69,499 2,88,399 FURNITURE AND FIXTURE 3,76,317 3,63,553 3,46,484 3,46,484 VEHICLES 5,95,569 3,91,971 5,11,566 14,83,455 ELECTRICAL INSTALLATION -------- 95,852 14,23,115 WATER COOL -------- 29 OTHER EQUIPMENTS 14,74,265 3,58,164 INDUSTRIAL INSTALLATION -------- 615 TOTAL 4,71,20,059 2,16,06,346 1,79,16,664 1,76,84,3 38 15 FROM THE AFORESAID TABULATION, WE FIND FORCE IN THE CONTENTION OF THE LEARNED AR THAT IT IS NOT A CASE WHERE BUILDING AS HELD BY THE ASSESSING OFFICER OF RS. 7,098/- WERE SOLD AT RS. 66,00,000/-. ON THE CONTRARY, IT IS A CASE WHERE BUILDING HAVING BOOK VALUE OF RS. 74,25,264/- WAS T RANSFERRED TO THE ASSESSEE COMPANY AT RS. 66,00,000/- AND THUS, LIKEWISE, IT I S NOT A CASE WHERE PLANT AND MACHINERY OF RS. 59.94 LACS AS NOTED BY THE ASSESSI NG OFFICER HAS BEEN TRANSFERRED FOR CONSIDERATION OF RS. 89.66 LACS. ON THE CONTRARY, PLANT AND MACHINERY HAVING BOOK VALUE OF RS. 3,71,66,000/- HA S BEEN TRANSFERRED FOR CONSIDERATION OF RS. 89,66,000/-. THE ABOVE VALUE A RE SUPPORTED BY A REGISTERED VALUERS REPORT AND ARE NOT MERE ARBITRARY VALUATIO NS ADOPTED BY THE ASSESSEE THE ASSESSING OFFICER VIS--VIS REGISTERED VALUERS REPORT HAS HELD THAT BOTH THE COMPANIES WERE ENGAGED IN THE SAME KIND OF ELECTRON IC BUSINESS AND PLANT AND MACHINERY USED BY THEM WAS UNIQUE AND THEY WERE NOT ORDINARILY MARKETABLE COMMODITIES, SO AS TO HAVE ANY VALUATION OF THEIR M ARKET PRICE. HE FURTHER 23 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 OBSERVED THAT BOTH THE COMPANIES KNEW THAT THERE WA S NO MARKET FOR THE OLD PLANT AND MACHINERY EXCEPT FOR THE OPINION THAT THE ASSETS OF ONE COMPANY DOING THE SAME BUSINESS WERE USED BY THE OTHER. IT WILL BE THUS SEEN THAT THE ASSESSING OFFICER HAS NOT FOUND ANY SPECIFIC DEFECT VIS--VIS VALUATION ADOPTED BY THE APPELLANT ON THE BASIS OF REGISTERED VALUERS REPOR T. IT COULD NOT BE SAID THAT AN ASSET THOUGH HAVING NIL VALUE UNDER THE INCOME TAX ACT WOULD BE TRANSFERRED ALSO NIL VALUE TO A THIRD PARTY MORE PARTICULARLY W HEN THE TRANSFER IS NOT OF AN ASSET BUT OF A BUSINESS ON A GOING CONCERN BASIS. T HE TRANSFER OF THE BUSINESS IS NOT IN DISPUTE. THE GENUINENESS OF THE TRANSFER OF THE BUSINESS IS ALSO NOT IN DISPUTE. THE PURPOSE BEHIND THE TRANSFER IS ALSO NO T IN DISPUTE. ALL WHAT HAS BEEN DISPUTED BY THE ASSESSING OFFICER AND UPHELD B Y THE CIT(A) IS VALUATION OF THE ASSETS ADOPTED FOR THE PURPOSE OF TRANSFER. IN SUCH CIRCUMSTANCES, WE FIND FORCE IN THE CLAIM MADE BEFORE US THAT IT IS NOT A CASE OF VALUATION HAVING BEEN ADOPTED BY A HIGHER PRICE MORE PARTICULARLY WHEN TH E TRANSACTION IS BETWEEN THE CLOSELY HELD COMPANY AND PUBLIC LIMITED COMPANY AND PRICE IS PAID TO PUBLIC LIMITED COMPANY BY THE CLOSELY HELD COMPANY. IT IS ALSO NOT A CASE WHERE PRICE AS STATED IN THE AGREEMENT HAS NOT BEEN PAID BY THE ASSESSEE. THE VALUATION IS SUPPORTED BY REGISTERED VALUERS REPORT WHICH VALUA TION HAS NOT BEEN SHOWN TO EITHER FANTASTIC OR IMAGINARY OR IRRATIONAL BY ANY COGENT EVIDENCE. ON THE CONTRARY, HAVING REGARD TO THE BOOK VALUE OF THE AS SETS STANDING UNDER THE 24 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 COMPANIES ACT, THE VALUE AS ADOPTED CANNOT OTHERWIS E BE SAID TO BE UNREASONABLE. 16 IN ARRIVING AT THE ABOVE CONCLUSION, WE FIND SUP PORT FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ASHWIN VA NASPATI INDUSTRIES V. CIT REPORTED IN 255 ITR 26 WHEREIN THEIR LORDSHIPS HAD SPECIFICALLY HELD THE VALUATION REPORT IS BY A REGISTERED VALUER NEITHER IN THE ASSESSMENT ORDER NOR IN THE TRIBUNALS ORDER IS THERE ANY WHISPER THAT THE VALUATION REPORT BY THE REGISTERED VALUER IS INCORRECT IN ANY MANNER WHATSO EVER. ONCE THERE IS A REPORT BY THE REGISTERED VALUER IT IS ENCUMBENT UPON THE A UTHORITY TO DISLODGE THE SAME BY BRINGING ADEQUATE MATERIAL ON RECORD IN THE FORM OF A DEPARTMENTAL VALUATION REPORT, BECAUSE IN THE ABSENCE OF THE SAME A TECHNI CAL EXPERTS OPINION CANNOT BE DISLODGED BY ANY AUTHORITY BY MERERLY IGNORING T HE SAME. IN THE PRESENT CASE THAT IS WHAT HAS HAPPENED. NEITHER THE ASSESSING OF FICER NOR THE TRIBUNAL HAVE EVEN ATTEMPTED TO STATE THAT THE VALUATION REPORT A ND THE VALUES PUT ON THE ASSETS ARE INCORRECT IN ANY MANNER WHATSOEVER. THEY HAVE S IMPLY IGNORED THE VALUATION REPORT. IT WAS FURTHER HELD AS UNDER: THE ASSESSEE HAVING MADE A CLAIM FOR DEPRECIATION ON ENHANCED COST, WHICH IS THE ACTUAL COST IN ITS HANDS, IT WAS NECESSARY FOR THE AUTHORITY WHO WANTED TO DETERMINE THE ACTUAL COST (AS REQUIRED BY EXPLANATION 3 TO SECTION 43 OF THE ACT) TO PLACE SO ME EVIDENCE ON RECORD. IT COULD NOT HAVE SUBSTITUTED ITS OPINION A ND ADOPTED THE BOOK VALUE OR THE WRITTEN DOWN VALUE IN THE HANDS O F THE ASSESSEE- COMPANY. AS CAN BE SEEN FROM EXPLANATION 3 TO SECTI ON 43(1) OF THE ACT, THE INCOME-TAX OFFICER IS REQUIRED TO DETERMIN E THE ACTUAL COST 25 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 TO THE ASSESSEE HAVING REGARD TO ALL THE CIRCUMSTAN CES OF THE CASE AND IF IN HIS OPINION THE WRITTEN DOWN VALUE WAS TH E ACTUAL COST, HE OUGHT TO HAVE SUPPORTED THE SAME BY PLACING SUFFICI ENT EVIDENCE SO AS TO DISLODGE THE VALUATION REPORT OF THE REGISTER ED VALUER. ON HIS HAVING FAILED TO DO SO, SEEN IF THE EARLIER PORTION OF THE PROVISION, VIZ., THE CONDITION OF THE ASSETS HAVING BEEN USED BY ANOTHER PERSON BEFORE THE DATE OF ACQUISITION STANDS FULFILLED TH E PROVISION CANNOT BE APPLIED. 17 FURTHER REFERENCE AT THIS JUNCTURE IS ALSO MADE TO THE DECISION OF THE TRIBUNAL IN THE CASE OF NIRMA INDUSTRIES (P.) LTD. 148 ITD 126 (AHD) WHEREIN IT HAS BEEN HELD AS UNDER: 3.4 WE FIND THAT IN THE PRESENT CASE, THE ENTIRE C ASE OF THE A.O. IS BASED ON EXPLANATION (3) TO SECTION 43(1) AS REPROD UCED ABOVE. AS PER THIS EXPLANATION, WE ARE OF THE CONSIDERED OPIN ION THAT THE A.O. CAN DETERMINE THE ORIGINAL COST OF THE ASSETS FOR A LLOWING DEPRECIATION TO THE ASSESSEE ONLY IF HE IS SATISFIE D THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSET, DIRECTLY OR INDI RECTLY TO THE ASSESSEE, WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EXTRA DEPRECIATION WITH REFERENCE TO AN ENHANCED CO ST. IT IS NOT SUFFICIENT THAT ONE OF THE MAIN PURPOSES WAS THIS. HENCE, IN OUR HUMBLE OPINION, THIS IS THE FIRST PREREQUISITE THAT THE A.O. HAS TO ESTABLISH THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSET WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EX TRA DEPRECIATION ON ENHANCED COST. IN ORDER TO ESTABLISH THIS, IT HAS T O BE ESTABLISHED THAT APART FROM CLAIMING ADDITIONAL DEPRECATION ON ENHAN CED COST, THERE IS NO OTHER MAIN PURPOSE FOR ACQUIRING THE ASSET IN QU ESTION. IN THE PRESENT CASE, THE A.O. IS ONLY DISPUTING THE VALUAT ION OF INTANGIBLE ASSET I.E. THE TRADEMARK ACQUIRED BY THE ASSESSEE F ROM RELATED PARTIES WITHOUT EVEN MAKING AN ALLEGATION THAT SUCH ACQUISI TION OF ASSETS WAS NOT HAVING ANY MAIN PURPOSE EXCEPT CLAIMING EXTRA D EPRECIATION. 3.7 IN VIEW OF OUR ABOVE DISCUSSION, WE FIND THAT THE ACTION OF THE A.O. IS NOT JUSTIFIED FOR TWO REASONS. THE FIRST RE ASON IS THIS THAT HE HAS NOT FULFILLED THE PRE REQUIREMENT FOR INVOKING THE PROVISION OF EXP.(3) TO SECTION 43(1) OF THE INCOME TAX ACT, 196 1. THE SECOND REASON IS THIS THAT EVEN AFTER INVOKING THIS EXP.(3 ) TO SECTION 43(1) 26 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 RIGHTLY OR WRONGLY, THE A.O. HAS NOT WORKED OUT THE VALUE OF THE ASSET IN QUESTION IN THE PROPER MANNER. HE HAS IGNORED TH E VALUATION REPORT OF VARIOUS TECHNICAL EXPERTS SUCH AS RSML & CO. C.A . AND OTHERS AND INSTEAD OF OBTAINING THE DEPARTMENTAL VALUATION REPORT OR ANY OTHER REPORT OF ANY OTHER INDEPENDENT VALUER, THE A .O. HAS MADE HIS OWN EXERCISE FOR VALUATION OF THE ASSET IN QUESTION ALTHOUGH IT CANNOT BE ACCEPTED THAT THE A.O. IS A TECHNICAL EXPERT FOR VALUATION OF THE ASSET IN QUESTION. MOREOVER, THE A.O. HAS ADOPTED T HE ROYALTY RATE OF PAST INSTEAD OF EXPECTED ROYALTY RATE IN FUTURE. EV EN FROM THE PAST ROYALTY RATE, HE HAS REDUCED 50% INCOME ON THIS BAS IS THAT THE GOODWILL WAS NOT TRANSFERRED AND SUB-LICENSED BY NC WL TO NL AND NCCL BUT HE HAS FORGOTTEN THAT THE INCOME OF THE RO YALTY IS NOT BEING AFFECTED ON THIS COUNT AND IT IS NOT MATERIAL AS TO WHETHER THE SAME IS WITH GOODWILL OR WITHOUT GOODWILL. HENCE, W E HAVE SEEN THAT EVEN THE VALUATION DONE BY THE A.O. IS NOT PROPER A ND THEREFORE, THE ACTION OF THE A.O. IS NOT JUSTIFIED. 18 THE ASSESSING OFFICER HAS ALSO LAID EMPHASIS ON THE FACT THAT SHORT TERM CAPITAL GAIN AS DECLARED BY THE TRANSFER OF COMPANY NAMELY M/S. DELTRON LTD. HAS BEEN SET OFF AGAINST THE LOSSES IN THE BOOKS OF THE SAID COMPANY. HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANCES IN T HE CASE OF THE ASSESSEE COMPANY AS HIGHLIGHTED ABOVE, SUCH A FACTOR ALONE C ANNOT BE MADE A BASIS TO INVOKE EXPLANATION 3 TO SECTION 43(1) OF THE ACT. E XPLANATION 3 TO SECTION 43(1) OF THE ACT IS NOT AN ABSOLUTE RULE. THE ASSESSING O FFICER IS EMPOWERED TO SUBSTITUTE THE VALUE. HOWEVER, SUCH A VALUATION CAN NOT BE SUBSTITUTED WHERE THERE IS NO INTENT TO REDUCE THE TAX LIABILITY. IN THE INSTANT CASE, AS STATED ABOVE, THE ASSETS AS HELD BY M/S. DELTRON LTD. AND TRANSFE RRED TO THE APPELLANT AS PART OF TRANSFER OF ELECTRONIC BUSINESS ON GOING CONCERN BA SIS CANNOT BE SAID TO BE IN 27 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 ANY MANNER WITH AN INTENT TO REDUCE THE TAX LIABILI TY. CERTAINLY, THE EFFECT OF THE TRANSACTION WAS THAT THE GAIN DECLARED BY M/S. DELT RON LTD. WAS SET OFF AGAINST THE LOSSES IN ITS COMPUTATION YET THAT FACT CANNOT UNDETERMINE THE GENUINENESS OF THE TRANSACTION AND IN ANY CASE EMPOWER THE ASSESSI NG OFFICER TO SUBSTITUTE THE VALUATION AS DETERMINED IN THE REGISTERED VALUERS REPORT WHICH HAS NOT BEEN FOUND TO BE INCORRECT BY ANY OTHER TECHNICAL VALUAT ION. HENCE, WE DO NOT SUBSCRIBE TO THE CONCLUSION OF THE AUTHORITIES BELO W. 19 THE ASSESSING OFFICER HAS REFERRED TO THE JUDGME NT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS POULOSE AND MATHEN (PVT .) LTD. 236 ITR 416. IN THE SAID CASE, THE ASSESSEE WAS A PARTNER IN A PARTNERS HIP FIRM CONSISTING OF NINE PARTNERS. THE PARTNERSHIP FIRM WAS DISSOLVED ON FEB RUARY 25, 1985 AND AS PER THE BOOKS OF ACCOUNTS OF THE FIRM THE WRITTEN DOWN VALUE OF THE ASSETS OF THE FIRM WAS RS. 3,16,110/-. HOWEVER THE ASSESSEE COMPA NY HAD TAKEN OVER THE ASSETS OF THE FIRM AFTER ITS DISSOLUTION AND, THE A SSETS WERE REVALUED AT RS. 22,30,795/- AND ACCORDINGLY, CLAIMED DEPRECIATION ON THE VALUE OF RS. 22,30,795/- AS PER THE REVISED VALUATION. ON SUCH F ACTS, THE HIGH COURT HELD THAT THE EXPLANATION 3 TO SECTION 43(1) OF THE ACT CORRE SPONDENTS TO SECTION 10(5)(A) AND 192 OF THE ACT. IT WAS NOTED THAT THE MAIN PURP OSE OF THE SAID PROVISION WAS THAT ASSESSING OFFICER HAD POWER TO DETERMINE THE A CTUAL COST IF THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING DEPRECIATION. T HE HONBLE COURT HELD THAT IN 28 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 SUCH A CASE, SUBSTITUTION OF ACTUAL COST BY THE ASS ESSING OFFICER WAS CORRECT AS THE PARTNERS OF THE FIRM HAD CONSTITUTED THEMSELVES INTO A PRIVATE LIMITED COMPANY. ALL THE SHAREHOLDERS OF THE COMPANY WERE T HE PARTNERS OR THEREFORE, NOMINEES AND THE SHARES WERE HELD IN THE SAME PROPO RTIONATE AS HELD BY THE PARTNERS. IT WAS ALSO HELD THAT VALUATION WAS ENHAN CED ONLY FOR MUTUAL ADJUSTMENT OF RIGHTS BETWEEN THE PARTNERS OF THE FI RM. IT WAS THUS HELD THAT IT IS A CASE OF DEVICE WHICH ATTRACTS EXPLANATION 3 TO SECT ION 43(1) OF THE ACT. THE FACTS ARE THUS TOTALLY DISTINGUISHABLE AS IN THE IN STANT CASE IT IS A TRANSFER OF PUBLIC LIMITED COMPANY TO THE CLOSELY HELD COMPANY FOR THE PURPOSE WHICH HAS NOT BEEN DISPUTED BY EITHER THE ASSESSING OFFICER O R THE CIT(A). MOREOVER, VALUATION HAVING REGARD TO THE BOOK VALUE OF THE AS SETS ALSO SHOWS THAT THE CLAIM IS NOT ARBITRARY OR UNREASONABLE OR IRRATIONAL, PAR TICULARLY WHEN SUPPORTED BY REGISTERED VALUERS REPORT FURNISHED BY THE ASSESSE E. LIKEWISE, IS THE CASE OF KUNGUNDI INDUSTRIAL WORKS PVT. LTD. VS. CIT 57 ITR 540 WHEREIN TOO, IT WAS A CASE OF CONVERSION OF FIRM INTO COMPANY AND NOT A T RANSFER BY THE PUBLIC LIMITED COMPANY TO THE PRIVATE LIMITED COMPANY. IT WAS NOTI CED THAT THE SHARES ALLOTTED IN THE SAME PROPORTIONATE TO THE SHAREHOLDERS AS TH E SHARES HELD BY THE PARTNERS IN THE PARTNERSHIP FIRM. IT WAS THUS HELD THAT BOTH THE ENTITIES ARE DISTINCT AND SEPARATE BUT IT IS NOT A CASE WHERE PRICE IS ACTUAL LY PAID BY ONE PERSON TO ANOTHER PERSON. THUS THE ABOVE JUDGMENT HAS ALSO NO APPLICA TION TO THE CASE OF THE 29 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 APPELLANT. IN THE CASE OF GUZDAR KAJORA COAL MINES LTD. VS. CIT, IT IS SEEN THAT THE FACTS WERE THAT THE ASSESSEE PURCHASED THROUGH DEED OF CONVEYANCE DATED 3.4.1996 ALL THE CUMULATIVE LANDS AND OTHER ASSETS TOGETHER WITH MACHINERY BELONGING TO GUZDAR KAJORA COAL MINES LTD. FOR A CO NSIDERATION OF RS. 6,00,000/-. IN THE SAID CASE, THE ITO ON DIRECTIONS OF THE TRIBUNAL HAD CARRIED OUT VALUATION WHICH PROVED THAT VENDOR COMPANY WAS MAKING GOOD PROFITS BUT NO PROVISION HAD BEEN MADE FOR THE GOODWILL OF THE COMPANY IN THE BUSINESS, WHICH WAS WORKED OUT TO RS. 2,56,960/-. IN SUCH CIR CUMSTANCES, IT WAS HELD THAT IF CIRCUMSTANCES EXIST SHOWING THAT A FICTITIOUS PR ICE HAS BEEN PUT ON THE ASSET OR THERE IS FRAUD OR COLLUSION BETWEEN THE VENDOR AND THE VENDEE AND THERE HAS BEEN INFLATION OR DEFLATION OF VALUE FOR ULTERIOR P URPOSES IT IS OPEN TO THE INCOME TAX AUTHORITIES TO REFUSE TO ACCEPT THE PRICE MENTI ONED IN THE DEED OR ALLEGED BY THE ASSESSEE AD TO ASCERTAIN WHAT WAS THE ACTUAL OR IGINAL WAS. IT WAS THUS HELD THAT IT WAS OPEN TO THE INCOME TAX AUTHORITIES TO D ETERMINE AND TO THE ASSESSEE TO SHOW WHETHER THE GOODWILL OF THE BUSINESS IS OR IS NOT INCLUDED IN THE CONSIDERATION OR THE PRICE PAID FOR THE ACQUISITION OF THE ASSET. THUS HAVING REGARD TO THE ABOVE, IN SUCH CIRCUMSTANCES, IT WAS HELD THAT IF CIRCUMSTANCES EXIST FOR GOING BEHIND THE VALUATION AS ALSO THE AL LOCATION GIVEN IN THE DEED OF CONVEYANCE, IT WAS AND IS OPEN TO THE INCOME TAX AU THORITIES TO DETERMINE THE VALUATION AS WELL AS THE ALLOCATION BETWEEN DEPRECI ABLE AND NON-DEPRECIABLE 30 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 ASSETS. THERE IS NO DISPUTE TO THE ABOVE CONCLUSION OF THE HONBLE APEX COURT. HOWEVER, ON THE SAID FACTS AS IS THE CASE OF THE AS SESSEE COMPANY, SUCH AN INTERFERENCE IS NOT WARRANTED AS THERE IS NOTHING O N RECORD TO SHOW THAT HAVING REGARD TO THE VALUE OF THE ASSETS HELD BY THE TRANS FER OR COMPANY, SUCH AMOUNT PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE O R IRRATIONAL. THE VALUERS REPORT HAS NOT BEEN COMMENTED UPON IN ANY MANNER BY THE AUTHORITIES BELOW EITHER BY LEADING EXPERT OPINION OR TO SHOW SUCH VA LUATION WAS EXCESSIVE AND HAS BEEN DONE WITH ANINTENT TO REDUCE THE TAX LIABI LITY. THE OTHERS JUDGMENTS AS REFERRED BY THE ASSESSING OFFICER ARE ALSO DISTINGU ISHABLE ON THE FACTS OF THE CASE OF THE ASSESSEE AND THEREFORE, CANNOT BE MADE A BASIS TO DRAW THE CONCLUSION AS HAS BEEN DRAWN BY THE ASSESSING OFFIC ER AND UPHELD BY THE CIT (A). 20 HAVING REGARD TO THE ABOVE, WE HOLD THAT ASSESSI NG OFFICER WAS NOT JUSTIFIED IN INVOKING EXPLANATION 3 TO SECTION 43(1 ) OF THE ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY AND THEREFORE, APPELLANT IS ENTITLED TO CLAIM OF DEPRECIATION ON THE ACTUAL COS T AS INCURRED BY THE APPELLANT ON TRANSFER OF THE ELECTRONIC BUSINESS ON GOING CON CERN BASIS FROM M/S. DELTRON LTD. TO THE APPELLANT COMPANY. 21 THE ASSESSING OFFICER HAS FURTHER HELD THAT THE ASSETS WERE USED BY THE APPELLANT FOR LESS THAN 180 DAYS AND THEREFORE, APP ELLANT IS ENTITLED TO CLAIM OF 31 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 DEPRECIATION FOR HALF OF THE YEAR AND NOT FOR THE E NTIRE YEAR. THE CIT(A) HAS ALSO CONFIRMED THE ABOVE CONCLUSION AND HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE APPELANTS SUBMISS ION AND HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. MY OBSERVATION ON THE ISSUE ARE AS UNDER: I) ON PAGE 4 OF THE ASSESSMENT ORDER, A CHART HAS B EEN GIVEN BY THE ASSESSING OFFICER. COLUMN 3 OF THE CHART GIVES THE COST OF ACQUISITION AS SHOWN BY THE ASSESSEE AND COLUMN 4 OF THE CHART SHOWS THE DEPRECIATION CLAIMED BY THE ASSESSEE. AS PER THE CHART, EXCEPT FOR DEPRECIATION ON BUILDING, THE ASSESSEE HIMSELF HAS CLAIMED DEPRECIATION AT HALF RATE. II) SECOND PROVISO TO SECTION 32 LAYS DOWN AS UNDER . PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO I N CLAUSE (I) OR CLAUSE (II){ OR CLAUSE (IIA)}, AS THE CASE MAY BE, IS ACQUIRED BY T HE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVI OUS YEAR, THE DEDUCTION UNDER THIS SUN-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PERCENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (IIA)}, AS THE CASE MAY BE. A READING OF THE ABOVE PROVISO MAKES IT CLEAR THAT TWO PRIMARY CONDITION FOR CALCULATION OF DEPRECIATION ARE DATE OF ACQUISIT ION AND DATE ON WHICH THE ASSET IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION. III) DURING THE PROCEEDINGS BEFORE ME, THE LEARNED AR WAS ASKED TO GIVE DETAILS OF THE ADDITIONS MADE TO FIXED ASSETS DURIN G THE YEAR UNDER CONSIDERATION. THE RELEVANT EXTRACTS OF THE CHART GIVEN BY THE LEA RNED AR IS REPRODUCED ARE UNDER: ADDITION ON WHICH DEPRECIATION IS TAKEN FOR FULL YEAR ADDITION ON WHICH DEPRECIATION IS TAKEN FOR HALF YEAR DELTRON DELTRON BUILDING 6600000 - PLANT & MACHINERY - 8966000 PLANT & MACHINERY (COMPUTER) - 288399 OFFICER EQUIPMENT - 1423115 FURNITURE & FIXTURE - 346484 VECHICLES - 511566 ELECTRICAL INSTALLATION - - 6,600,000 11,535,564 32 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 IT IS CLEAR FROM THE CHART ABOVE THAT THE ASSESSEE HIMSELF HAS TAKEN THE DEPRECATION FOR HALF YEAR ON ADDITION TO ASSETS TAK EN FROM DELTON, EXCEPT FOR BUILDING. DURING THE PROCEEDINGS, LEARNED AR WAS AL SO REQUIRED TO SUBSTANTIATE AS TO WHEN WAS THE BUILDING OCCUPIED/ PUT TO USE BY THE ASSESSEE CONCERN. IN RESPONSE THERETO, ONE NOTE WAS SUBMITTED, EXPLAININ G THEREBY THAT WHEN THE ELECTRONICS BUSINESS OF DELTRON LTD. ( DL IN SHROT ) WAS TRANSFERRED TO ASSESSEE CONCERN ON 30.09.2004 ALL PLANT AND MACHINERY AS WE LL AS ALL MATERIAL WAS TRANSFERRED ON A GOING-CONCERN BASIS AND THE BUSINE SS WAS CARRIED ON AFTER THE SAID DATE AS THOUGH NO CHANGE HAD TAKEN PLACE. IT I S PERTINENT TO MENTION HERE THAT THE NOTE SUBMITTED BY THE ASSESSEE IS REPETI TION OF HIS ARGUMENTS ALREADY FILED. HE WAS REQUIRED TO SUBSTANTIATE AS TO WHEN W AS THE BUILDING OCCUPIED/ PUT TO USE BY THE ASSESSEE CONCERN. HOWEVER, NOTHING HA S BEEN PRODUCED TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE. IV) AS ALREADY DISCUSSED ABOVE, AS PER THE LEGAL RE QUIREMENT OF SECTION 32; DATE OF ACQUISITION AND DATE ON WHICH ASSET IS PUT TO USE ARE THE DETERMINING FACTOR FOR CALCULATING THE DEPRECIATION. HOWEVER NO THING HAS BEEN PRODUCED TO SUBSTANTIATE THAT THE CONDITIONS ARE SATISFIED FOR CLAIMING DEPRECIATION FOR MORE THAN 180 DAYS. MOREOVER, AS ALREADY POINTED OUT, EX CEPT FOR BUILDING, THE ASSESSEE ITSELF HAS CLAIMED DEPRECIATION FOR HALF Y EAR. IN VIEW OF THE ABOVE, I FIND THAT THE ASSESSING OFFICER WAS JUSTIFIED IN ALLOWIN G THE DEPRECIATION AT HALF RATES AND GROUNDS OF APPEAL 1,2,& 7 ARE, THEREFORE, DISMI SSED. 22 HAVING REGARD TO THE ABOVE FINDING, WE DO NOT FI ND ANY MERIT IN THE CLAIM OF THE APPELLANT THAT DEPRECIATION IS TO BE ALLOWED FOR THE ENTIRE YEAR PARTICULARLY HAVING REGARD TO THE FACT THAT ASSESSEE ITSELF HAD CHOSEN TO CLAIM DEPRECIATION FOR HALF OF THE YEAR FOR ALL ASSETS OTHER THAN THE BUIL DING. THE ASSESSEE HAS ALSO NOT PLACED ON RECORD ANY EVIDENCE TO SUBSTANTIATE WHEN WAS THE BUILDING OCCUPIED/PUT TO USE BY THE APPELLANT COMPANY. IN SU CH REGARD, THE CONCLUSION AS DRAWN BY BOTH THE ASSESSING OFFICER AND CIT(A) IS I N ORDER AND THEREFORE, IT IS DIRECTED THAT THE DEPRECIATION IS TO BE ALLOWED ONL Y FOR HALF OF THE YEAR AND NOT FOR THE ENTIRE YEAR. 33 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 23 IN LIGHT OF THE ABOVE, GROUND NO. 1 AND 2 AS RAI SED BY THE APPELLANT ARE REJECTED AND GROUND NO. 3 TO 5 ARE ALLOWED. 24 GROUND NO. 6 IN ITA NO. 134/DEL/2009 IS AGAINST THE DISALLOWANCE OF 50% OF BOARDING AND LODGING EXPENSES IN RESPECT OF FOREIGN TRAVELLING. 25 THE ASSESSEE HAS CLAIMED THE DIRECTORS FOREIGN T RAVELLING EXPENSES OF RS. 20,33,758/-. DURING THE ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO THE FILE THE DETAILS OF THE SAME ALONG WITH THE BIL LS AND VOUCHERS. THE AO OBSERVED THAT ALTHOUGH THE DETAILS WERE FILED BUT N O BILLS AND VOUCHER WITH RESPECT TO THE BOARDING AND LODGING WERE FILED FOR AN AMOUNT RS. 6,32,295/-. ACCORDINGLY, THE AO DISALLOWED 50% OF THE AMOUNT. B EFORE THE CIT(A) ALSO, THE ASSESSEE DID NOT PRODUCE BILLS AND VOUCHERS TO THE AFORESAID EXPENSES. THEREFORE, THE CIT(A) HELD THAT THE AO WAS JUSTIFIE D AND REASONABLE IN DISALLOWING 50% OF THE CLAIM FOR WHICH EVIDENCE WAS NOT PRODUCED. 26 LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AO HAD D ISALLOWED A SUM OF RS. 3,66,148/- BEING 50 % OF EXPENSES ON BOARDING A ND LODGING FOR WHICH THE ASSESSEE COULD NOT PRODUCE THE BILLS AND VOUCHERS. HE SUBMITTED THAT THE BOARDING AND LODGING EXPENSES HAVE BEEN INCURRED OU T OF FOREIGN EXCHANGE @ 500 USD PER DAY. HE SUBMITTED THAT THE AO STATED TH AT ASSESSEE FILED DETAILS BUT DID NOT FURNISH DETAILS OF BOARDING & LODGING. HE S UBMITTED THAT THE DETAILS OF FOREIGN TRAVELING EXPENSES ARE FILED WHICH WERE ALS O FILED BEFORE THE A.O./ 34 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 CIT(A). HE THEREFORE SUBMITTED THAT THE AO HAD NOT DOUBTED THE GENUINENESS OF THE TRAVEL OR EXPENSES. HE FURTHER SUBMITTED THAT O NLY OUT OF THE FOREIGN CURRENCY, WITHDRAWN HAD BEEN PICKED UP FOR DISALLOW ANCE AND 50% AD HOC DISALLOWANCE HAD BEEN MADE, ONLY IN ABSENCE OF SUPP ORTING BILLS. HE SUBMITTED THAT FOREIGN CURRENCY, WITHDRAWN AS PER THE PERMISS IBLE LIMITS AND WAS NOT EXCESSIVE AND THERE WAS NO ALLEGATION THAT EXPENSES ARE OF PERSONAL NATURE. HE FURTHER SUBMITTED THAT THE TOTAL EXPORT TURNOVER OF THE ASSESSEE DURING THE YEAR WERE ABOUT RS. 53 CRORES AND ASSESSEE HAD EXPORTS T O ALMOST ALL THE COUNTRIES VISITED BY THE DIRECTORS AND EMPLOYEES OF THE ASSES SEE. IN VIEW OF THE ABOVE, LD. AR PLEADED THAT THE ORDER OF THE CIT (A) ON THIS IS SUE BE SET ASIDE. 27 WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND PE RUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED F OREIGN AND TRAVELLING EXPENSES OF RS. 20,33,758/-. THE ASSESSING OFFICER HAS NOTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT FURNISH BILLS A ND VOUCHERS IN RESPECT OF BOARDING AND LODGING EXPENSES AGGREGATING TO RS. 6, 32,295/- AND AS SUCH, DISALLOWED 50% OF THE EXPENDITURE AND COMPUTED THE DISALLOWANCE AT RS. 3,66,148/-. IT IS THUS APPARENT THAT ASSESSING OFFI CER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE ON AN INDIVIDUAL SPE CIFIC LEVEL. THE TRAVELLING EXPENSES HAVE ALSO BEEN ALLOWED IN ENTIRETY OTHER T HAN ABOVE DISALLOWANCE OF BOARDING AND LODGING DISALLOWANCE IN AN ADHOC MANNE R ON THE GROUND THAT 35 ITA NO.134/DEL/2009 ITA NO.1319/DEL/2011 ITA NO.5656/DEL/2010 ITA NO.316/DEL/2013 SUPPORTING EXPLANATION WERE NOT FURNISHED. WE DO NO T FIND MERIT IN SUCH A MANNER AND THE METHOD OF THE DISALLOWANCE. THE ASSE SSING OFFICER NEITHER HAVING IDENTIFIED, HIGHLIGHTED THE SPECIFIC ITEMS I N RESPECT OF WHICH, DISALLOWANCE HAS BEEN MADE BY HIM, THE ADHOC DISALL OWANCE SO MADE IS DELETED. THE GROUND RAISED IS THUS ALLOWED. 28 SINCE THE FACTS AND THE GROUNDS RAISED IN THE OT HER THREE APPEALS (ITA NOS.1319/DEL/2011, 5656/DEL/2010 AND 316/DEL/2013) ARE SIMILAR, AND SO ARE DISPOSED OFF ON THE SAME LINES. 28 IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF OCTOBER, 2015. SD/- SD/- (N.K. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 16 TH DAY OF OCTOBER, 2015 TS COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI