DCIT 2(1), MUMBAI V. TML DRIVELINES LTD ( FORMERLY KNOWN AS H.V. TRANSMISSIONS LTD), MUMBAI

ITA 3362/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9004 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 26-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Wholly owned subsidiary; Tax effect; Revised return
• Section: 143(3); 14A; 147; 148; 37; 6

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL EBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER ./I.T.A./3362/MUM/2013 , /ASSESSMENT YEAR: 2009-10 DCIT-2(1) AAYAKAR BHAVAN ROOM NO.561, 5 TH FLOOR MK ROAD, MUMBAI-400 020. VS. TML DRIVELINES LTD. (FORMERLY KNOWN AS H.V. TRANSMISSIONS LTD.) 3 RD FLOOR, NANAVATI MAHALAYA 18, HOMI MODY STREET HUTATMA CHOWK, MUMBAI-400 001. PAN:AAACH 7626 Q ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./3363/MUM/2013 , /ASSESSMENT YEAR: 2009-10 DCIT-2(1) AAYAKAR BHAVAN ROOM NO.561, 5 TH FLOOR MK ROAD, MUMBAI-400 020. VS. TML DRIVELINES LTD. (FORMERLY KNOWN AS H.V. AXELS LTD.) 3 RD FLOOR, NANAVATI MAHALAYA 18, HOMI MODY STREET HUTATMA CHOWK, MUMBAI-400 001. PAN:AAACH 7626 Q ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./3436/MUM/2013 , /ASSESSMENT YEAR: 2009-10 TML DRIVELINES LIMITED (FORMERLY KNOWN AS H.V. AXELS LTD.) MUMBAI-400 001. VS. DCIT-2(1) MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: MS. BEENA SANTOSH -DR ASSESSEE BY: MS. AARTI SATHE / DATE OF HEARING: 10.01.2017 / DATE OF PRONOUNCEMENT: 10.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM - CHALLENGING THE ORDER,DATED 08/02/2013 OF THE CIT ( A)-4,MUMBAI THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED CROSS APPEALS FOR THE AY.2009 -10.ONE APPEAL HAS BEEN FILED BY THE ERSTWHILE ENTI TY OF THE GROUP IN ITS ORIGINAL NAME I.E H.V.TRANSMISS ION LTD. THUS,THERE ARE THREE APPEALS OF THE GROUP. FOR THE SAKE OF CONVENIENCE,WE ARE DEDICATING ALL THE A PPEALS BY A SINGLE COMMON ORDER. ITA/3436/MUM/2013 (H.V.AXLES LTD.)-AY.2009-10.(ASSE SSEES APPEAL): ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AUTOMOBILE AND AUTO-PARTS, FILED ITS RETURN OF INCOME ON 29/09/2009,DECLARING TOTAL INCOME AT RS.1 1,92, 60,545/-. THE AO COMPLETED THE ASSESSMENT,U/S. 143(3) OF THE ACT, ON 24/11/2011, D ETERMINING ITS INCOME AT RS. 15.21 CRORES 3362,3363&3436/M/13-TML DRIVELINES 2 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U /S.14A OF THE ACT UNDER THE NORMAL COMPU -TATION.DURING THE ASSESSMENT PROCEEDINGS, TH E AO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 153.15 LAKHS, THAT IT HAD CL AIMED THE SAID INCOME AS EXEMPT INCOME,THAT IT HAD NOT MADE ANY DISALLOWANCE U/S. 1 4A ON ACCOUNT OF EXPENSES RELATING TO DIVIDEND INCOME. HE MADE A DISALLOWANCE OF RS. 43.0 3 LAKHS,INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL ES,1962(RULES). 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IT WAS ARGUED THAT THE ENT IRE AMOUNT OF DIVIDEND HAD BEEN EARNED OUT OF INVEST -MENT IN MUTUAL FUNDS, THAT THE ASSES SEE HAD SUFFICIENT OWN FUNDS, THAT THE AO HAD MADE INTEREST DISALLOWANCE WITHOUT CONSIDERING THE AVAILABLE FUND POSITION, THAT IT HAD NOT BORROWED ANY FUNDS TO MAKE INVESTMENTS,THAT IT HAD INCURRED NO EXPENDITURE FOR EARNING INCOME FROM INVESTMENTS OR FOR REALISATION OF DIVID END INCOME.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER ,THE FAA HELD THAT ASSESSEE MUST HAVE MADE SOME EFFORTS IN MAKING RESEARCH FOR DECIDING W HERE TO INVEST AND HOW MUCH TO INVEST,THAT IT COULD NOT BE DENIED THAT A PART OF A DMINISTRATIVE EXPENDITURE WAS NOT RELATED TO INCOME GENERATED BY SUCH INVESTMENT,THAT DISALLOW - ANCE OUT OF THE ADMINISTRATIVE EXPENSES HAD TO BE MADE. WITH REGARD TO THE INTEREST DISALLOWANCE,THE FAA DI RECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND TO EXCLUDE THE INTEREST EXPENDITURE,IF IT WAS FOUND THAT EXPENDITURE WAS ELIGIBLE TO FIXED ASSETS AND INTELLECTUAL PROPERTY RIGHTS. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) STATED THAT WHILE DECIDING THE APPEAL THE FAA HAD SUBSTANTIALLY REDUCED THE DISALLOWANCE ON ACCOUNT OF ADMINIS-TRATIVE EXPENSES,THAT CONSIDERING THE SMALL NESS OF THE TAX EFFECT THE ASSESSEE WOULD NOT LIKE TO PRESS THE GROUND.FIRST GROUND OF APPEA L,RAISED BY THE ASSESSEE,IS DISMISSED,AS NOT PRESSED. 5. NEXT GROUND OF APPEAL,IS ABOUT DISALLOWANCE U/S. 14 A UNDER MAT COMPUTATION. DURING THE COURSE OF HEARING BEFORE US, THE AR FAIRLY CONCEDED THAT THE ISSUE STAND DECIDED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT,DELIVERED IN THE CASE OF GOETZE (INDIA) LTD.(361 ITR 505), THAT IN THE EARLIER YEAR S THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL.THE DEPARTMENTAL REPRESENT ATIVE(DR) SUPPORTED THE ORDER OF THE FAA. 3362,3363&3436/M/13-TML DRIVELINES 3 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE EARLIER YEAR THE APPELL ATE AUTHORITIES WERE NOT HAVING THE BENEFIT OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CAS E OF GOETZE (INDIA) LTD.(SUPRA).THEREFORE, RESPECTFULLY FOLLOWING THE A BOVE DECISION,WE DECIDE THE SECOND GROUND OF APPEAL AGAINST THE ASSESSEE. ITA/3363/MUM/2013( H.V.TRANSMISSION LTD.),AY.2009-1 0(APPEAL BY THE AO). 7. CHALLENGING THE ORDER DATED 08/02/2013, OF THE CIT (A)-4,MUMBAI THE AO HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN BUSINESS OF MANUFACTURING OF GEARBOXES AND PARTS, FILED ITS RETURN OF INCOME ON 29/09/2009, DE CLARING INCOME OF RS.13,81,79,124/-.THE AO COMPLETED THE ASSESSMENT ON 24/11/2011,DETERMINI NG ITS INCOME AT RS.15,05,27,763/-. 8. FIRST GROUND OF APPEAL IS ABOUT DEDUCTION U/S.35 DD A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD MADE A CLAIM OF RS.24.2 LAKHS U/S. 35DDA OF THE ACT,THAT DURING THE AY.2007-08,IT HAD CLAIMED A ND AMOUNT OF RS. 61.71 LAKHS TOWARDS EMPLOYEE SEPARATION COST U/S. 37 (1) OF THE ACT, TH AT THE THEN AO HAD ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE WHILE COMPLETING THE ASSESSMENT FOR THE AY.2007-08.DURING THE ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSI DERATION,THE ASSESSEE REQUESTED TO ALLOWED REDUCTION OF RS. 12.43 LAKHS (1/5 OF RS. 61.71 LAKH S) THAT WAS DISALLOWED IN THE AY.2007-08.. HOWEVER.THE AO DID NOT ENTERTAIN THE CLAIM. 9. DURING THE COURSE OF HEARING BEFORE US, IT WAS BROU GHT OVER NOTICE THAT FOR THE AY.2007 08 THE DEPARTMENT HAD ALLOWED THE CLAIM OF RS. 61.7 1 LAKHS U/S. 37 (1) BY ITS ORDER DATED 31/ 03/2013 COMPLETED U/S. 147 R.W.S.143 (3) OF THE ACT ,THAT ACCORDINGLY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THAT YEAR (ITA/1304/MUM/201 1, DATED 29/07/2016) HAD DISMISSED THE GROUND IS ACADEMIC IN NATURE.WE WOULD LIKE TO REPRO DUCE THE RELEVANT PORTION OF THE SAID ORDER AND IT READS AS UNDER: 5.THE SECOND ISSUE IN THE APPEAL OF THE ASSESSEE I S THAT THE LD. CIT (A) ORDER IN NOT ADJUDICATING REGARDING DIRECTION OF DISALLOWANCE OF EMPLOYEES SEPARATION COST WHICH WAS CLAIMED U/S. 37 (1) OF THE ACT. 5.1. THE LD. CONSUL FOR THE ASSESSEE SUBMITS THAT T HE ISSUE BECOMES ACADEMIC IN VIEW OF THE ORDER PASSED U/S. 143 (3) READ WITH SECTION 148 WHE REIN THE LD. CIT (A) HAS GIVEN RELIEF. THUS, THIS GROUND OF THE ASSESSEE IS DISMISSED. 3362,3363&3436/M/13-TML DRIVELINES 4 FROM THE ABOVE,IT IS CLEAR THAT THE ISSUE OF EMPLOY EES SEPARATION COST HAS BECOME FINAL BY THE ORDER OF THE FAA. AS AN APPELLATE AUTHORITY, THE FA A IS AUTHORISED TO ADMIT NEW GROUNDS OF APPEAL WHEREIN THE ASSESSEE ASKS FOR THE RELIEF.THE ASSESSEE IS NOT REQUIRED TO FILE A REVISED RETURN FOR CLAIMING RELIEF.THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE FAA.FIRST GROUND OF APPEAL, R AISED BY THE AO,IS DISMISSED. 10. NEXT GROUND OF APPEAL IS ABOUT DIRECTION GIVEN TO T HE AO TO ALLOWED DEPRECIATION ON THE REVISED WDV OF ASSETS ACQUIRED BY THE ASSESSEE FROM ITS HOLDING COMPANY. IT WAS BROUGHT OVER NOTICE THAT IN THE CASE OF SISTER CONCERN I.E. H.V. AXLES PRIVATE LTD. (ITA/6020/MUM/2011-AY. 2007-08,DATED 31/08/2012)THE TRIBUNAL HAD DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE AO. WE ARE REPRODUCING THE ORDER OF THE TRIBUNAL AND IT READS AS UNDER- THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSME NT YEAR 2007-08 AGAINST ORDER DATED 6.6.2011 OF LD CIT(A) ON FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) ERRED IN ALLOWING ASSESSEES APPEAL IN VIOLATION TO SECTION 47 OF THE ACT WHICH CLEARLY STATES THAT IN CASE OF TRANSFER OF ASSET TO SUBSIDIARY COMPANY THE ACTUAL COST TO THE TRANSFERE E COMPANY SHALL BE TAKEN TO BE SAME AS IF IT WOULD HAVE BEEN IF THE TRANSFEROR COMPANY HAD CONTINUED T O HOLD THE CAPITAL ASSET. 2. THE RELEVANT FACTS ARE THAT ASSESSEE ACQUIRED C ERTAIN ASSETS FROM TATA MOTORS LIMITED (TML) IN THE YEAR UNDER CONSIDERATION I.E. F.Y. 2006-07. SINCE A SSESSEE WAS 100% SUBSIDIARY OF TML DURING THE FINANCIAL YEAR 2006-07, DEPRECIATION ON THE ASSETS SO ACQUIRED WAS CLAIMED ON THE WRITTEN DOWN VALUE (WDV) AS APPEARING IN THE BOOKS OF TML, THOUGH THE ASSESSEE HAD ACQUIRED THOSE ASSETS AT A HIGHER PRICE THAN THE COST OF THE ASSETS TO TML. THE SAID DEPRECIATION WAS CLAIMED AT WDV AS PER EXPLANATION 6 TO SUB-SECTION (1) OF SECTION 43 OF THE INCOME TA X ACT. IN THE SUBSEQUENT PERIOD I.E. F.Y. 2007-08, TML TRANSFERRED CERTAIN SHARES OF ASSESSEE COMPANY TO TATA SONS LIMITED (TSL), ANOTHER COMPANY. HENCE, ASSESSEE COMPANY CEASED TO BE 100% SUBSIDIAR Y OF TML. IN VIEW THEREOF, IT WAS STATED THAT THE TREATMENT OF THE TRANSFER OF THE SAID ASSETS ACQUIR ED BY ASSESSEE FROM TML HAD TO BE CHANGED IN THE HANDS OF THE ASSESSEE COMPANY AS WELL AS IN THE HAN DS OF TML IN VIEW OF CLAUSE (II) OF SECTION 47A(1) OF THE I.T.ACT. ACCORDINGLY, ASSESSEE CHANGED THE COST OF ACQUISITION OF THE SAID ASSETS FROM WDV AS APPEARING IN THE BOOKS OF TML AT THE TIME OF TRANSF ER TO THE ACTUAL PRICE PAID BY THE ASSESSEE COMPANY TO TML AND, ACCORDINGLY, CLAIMED ENHANCED DEPRECIAT ION AND FILED REVISED CLAIM. THE AO DID NOT AGREE TO THE REVISED CLAIM AND ALLOWED DEPRECIATION ON WDV AS APPEARING IN THE BOOKS OF TML AT THE TIME OF TRANSFER OF THE SAID ASSETS. BEING AGGRIEVE D, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND DECISION OF ITAT MUMBAI IN THE CASE OF ESSAR OIL LTD VS DCIT, 13 SOT 691 HELD THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND DIRECTED THE AO TO TAKE THE COST OF AC QUISITION OF SUCH ASSETS AS HAVE BEEN ACQUIRED BY T HE ASSESSEE FROM TML AT THE COST AT WHICH THEY HAVE BE EN ACQUIRED AND, ACCORDINGLY ALLOWED THE DEPRECIATION TO THE ASSESSEE. HENCE, THIS APPEAL BY THE DEPARTMENT. 4. AT THE TIME OF HEARING, LD D.R. RELIED ON THE OR DER OF AO. 5. ON THE OTHER HAND, LD A.R. SUPPORTED THE ORDER O F LD CIT(A) AND SUBMITTED THAT THIS ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT IN THE CASE OF ESSAR OIL LTD (SUPRA). HE FURTHER SUBMITTED THAT HONBLE BOMBAY HIGH COURT HA S CONFIRMED THE SAID ORDER OF ITAT IN THE APPEAL FILED BY DEPARTMENT VIDE ORDER DT.7.7.2011 IN INCOM E TAX APPEAL NO.3160 OF 2010. LD A.R. REFERRED THE PROVISIONS OF SECTION 47A(1)(II) AND SUBMITTED THAT AS PER SECTION 49(3) OF THE I.T.ACT, THE COST OF 3362,3363&3436/M/13-TML DRIVELINES 5 ACQUISITION ACQUIRED BY THE ASSESSEE FROM TML SHOUL D BE THE COST FOR WHICH SUCH ASSETS WERE ACQUIRED BY IT AS TML TRANSFERRED SOME OF THE SHARES OF THE ASSESSEE COMPANY TO ANOTHER COMPANY NAMELY TSL BEFORE EXPIRY OF PERIOD OF EIGHT YEARS. AS SUCH, AS SESSEE COMPANY CEASED TO BE 100% SUBSIDIARY OF TML. 6. WE HAVE CAREFULLY CONSIDERED SUBMISSIONS OF LD R EPRESENTATIVES OF PARTIES IN THE LIGHT OF THE RELEV ANT PROVISIONS OF ACT AND ORDERS OF AUTHORITIES BELOW. WE AGREE WITH LD A.R. THAT ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF ITAT IN THE CASE OF ESSAR OIL LTD (SUPRA). IN THE SAID CASE, ASSESSEE COMPANY WAS A WHOLLY OWNED SUBSIDIAR Y OF THE COMPANY NAMELY ESSAR GUJARAT LTD (HEREINAFTER REFERRED EG). THE ASSESSEE COMPANY H AD TAKEN OVER ENERY AND OFFSHORE DIVISION OF EG W.E.F. 31.5.1992. IN THE RELEVANT ASSESSMENT YEAR, ASSESSEE CLAIMED DEPRECIATION ON THE FIXED ASSETS A ND FOR THAT PURPOSE; IT HAD TAKEN WDV OF THE FIXED ASS ETS AS APPEARING IN THE BOOKS OF EG. HOWEVER, ASSESSEE COMPANY CEASED TO BE WHOLLY OWNED SUBSIDIA RY OF THE TRANSFEROR COMPANY EG ON 30.9.1994. THE AO ALLOWED THE DEPRECIATION BY CONSIDERING WDV OF THOSE ASSETS AS APPEARING IN THE BOOKS OF THE EG IN VIEW OF EXPLANATION 6 TO SECTION 43(1) OF T HE I.T.ACT. LD CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. HOWEVER, IN FURTHER APPEAL BEFORE THE TRIBU NAL, THE TRIBUNAL HELD THAT THE COST FOR WHICH THE ASSESSEE HAD ACQUIRED THE ASSETS SHOULD BE THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION IF THE TRANSFEROR COMPANY CEASED TO BE THE 100% HOLDING COMPANY OF ITS SUBSIDIARY WITHIN A PERIOD OF EIGHT YEARS. WE CONSIDER IT PRUDENT TO REPRODUCE PARA 10 OF THE SAID ORDER, WHICH READS AS UNDER: HAVING HEARD BOTH THE PARTIES EXTENSIVELY AND HAVI NG CONSIDERED THE MATERIAL ON RECORD, WE FIND THAT THE DISPUTE RELATES TO THE VALUE OF THE IN THE HAND S OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE DEPRECIATION. IN THE PRESENT CASE, THE FOLLOWING UN DISPUTED FACTS ARISE : (I) AS ON THE DATE OF TRANSFER I.E., 30-5-1999,(CORRECT DATE IS 30.5.1992 & APPEARS TO BE TYPOGRAPHICAL MISTAKE) THE TRANSFEROR COMPANY M/S. ESSAR GUJARAT LTD. IS THE 100% HOLDING COMPANY OF ITS SUBSIDIARY M/S. ESSAR OIL, THE TRANSFEREE COMPANY A ND THE ASSESSEE HEREIN. (II) THE TRANSFEREE COMPANY CEASED TO BE THE WHOLLY OWN ED SUBSIDIARY OF THE TRANSFEROR COMPANY IN SEPTEMBER, 1994. (III) THE ENERGY AND OFFSHORE DIVISIONS OF THE HOLDING C OMPANY WERE TAKEN OVER BY THE ASSESSEE AS GOING CONCERNS. THUS, THE ASSESSEE HAS TAKEN OVER THE ASS ETS OF THE HOLDING COMPANY A DIVISION BY LOCK, STOC K AND BARREL. A DIVISION AS SUCH IS COMPLETELY TAKEN OVER BY THE SUBSIDIARY. THE ASSESSING OFFICER HAS APPLIED THE PROVISIONS OF SECTION 47(IV) OF THE ACT TO CONSIDER THE NATURE O F TRANSFER AND THEREBY APPLIED THE EXPLANATION 6 SUB- SECTION (1) OF SECTION 43 FOR THE PURPOSE OF WORKIN G OUT THE ACTUAL COST TO THE SUBSIDIARY COMPANY. EXPL ANATION 6 TO SUB-SECTION (1) OF SECTION 43 PROVIDES AS UNDER: EXPLANATION 6 TO SUB-SECTION (1): WHEN ANY CAPITAL ASSET IS TRANSFERRED BY A HOLDING COMPANY TO ITS SUBSIDIARY COMPANY OR BY A SUBSIDIARY COMPANY TO IT S HOLDING COMPANY, THEN, IF THE CONDITIONS OF CLAUSE (IV) OR, AS THE CASE MAY BE, OF CLAUSE (V) O F SECTION 47 ARE SATISFIED, THE ACTUAL COST OF THE TRANSFERRED CAPITAL ASSET TO THE TRANSFEREE COMPANY SHALL BE TAKEN TO BE THE SAME AS IT WOULD HAVE BEE N IF THE TRANSFEROR COMPANY HAD CONTINUED TO HOLD THE CAPITAL ASSET FOR THE PURPOSE OF ITS SUBSIDIARY. WHERE A 100 PER CENT HOLDING COMPANY OF A SUBSIDIAR Y COMPANY TRANSFER CERTAIN ASSETS TO SUCH SUBSIDIARY COMPANY EVEN FOR A PRICE OR CONSIDE RATION HIGHER THAN THE- WDV, THE CAPITAL GAINS ON SUCH TRANSFER HAS BEEN EXEMPTED UNDER SECT ION 47(IV). THE REASON BEING THE IDENTITY OF THE OWNERSHIP OF THE COMPANIES PRECLUDED ITS BEI NG CONSIDERED AS INVOLVING GAIN TO THE TRANSFEROR COMPANY. AS CAPITAL GAIN WAS EXEMPT IN T HE HANDS OF THE TRANSFEROR COMPANY AND IN ORDER TO ENSURE THAT THE TRANSFEREE COMPANY DOES NOT CLAIM DEPRECIATION ON A HIGHER COST, IT WAS PROVIDED BY THE-INSERTION OF EXPLANATION (6) TO SUB-SECTION (1) OF SECTION OF THE ACT, THAT IN SUCH CASES THE WDV IN THE HANDS OF THE TRAN SFEROR COMPANY, SHALL BE THE COST OF ACQUISITION IN THE HANDS OF THE TRANSFEREE COMPANY. THE ASSESSING OFFICERS ACTION IS RIGHT AS FAR AS THE SITUATION AS THE DATE OF TRANSFER IS CON CERNED. BUT BY 30-9-1994, THE ASSESSEE COMPANY CEASED TO BE THE SUBSIDIARY OF THE TRANSFER OR HOLDING COMPANY. SECTION 47 GRANTS 3362,3363&3436/M/13-TML DRIVELINES 6 EXEMPTION FROM SECTION 45 WHILE SECTION 47A WITHDRA WS EXEMPTION GRANTED UNDER SECTION 47 ON THE OCCURRENCE OF THE EVENTS MENTIONED THEREIN. SECTION 47 READS AS UNDER : 47. NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS: (I) TO (III) (IV) ANY TRANSFER OF A CAPITAL ASSET BY A COMPANY T O ITS SUBSIDIARY COMPANY, IF (A) THE PARENT COMPANY OR ITS NOMINEES HOLD THE WHO LE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY, AND (B) THE SUBSIDIARY COMPANY IS AN INDIAN COMPANY; CLAUSE (II) OF SECTION 47A PROVIDES THAT THE EXEMP TION GRANTED UNDER SECTION 47 SHALL BE WITHDRAWN IF THE SUBSIDIARY COM PANY CEASES TO BE SO FROM THE HOLDING COMPANY WITHIN A PERIOD OF 8 YEARS FROM THE DATE OF TRANSFER OF THE CAPITAL ASSET AND IT SHALL BE TREATED AS THE INCOME OF THE YEAR WHICH THE TRAN SFER HAS TAKEN PLACE. THE FACT THAT THE ASSESSEE HAS CEASED BE THE SUBSIDIARY OF THE HOLDIN G COMPANY ON 30-9-1994 WAS BROUGHT TO NOTICE OF THE ASSESSING OFFICER DURING THE ASSESSME NT PROCEEDINGS BUT REJECTED THE SAME ON THE GROUND THAT THE SUBSEQUENT EVENTS WILL NOT HAVE ANY MATERIAL CHANGE WITH RESPECT TO CHANGING OF COST OF ACQUISITION THE CAPITAL ASSETS ACQUIRED FROM THE HOLDING COMPANY. BUT, IN OUR OPINION, THE ASSESSING OFFICER SHOULD HAVE CONS IDERED THE SUBSEQUENT EVENTS. THE APPLICATION OF THE PROVISIONS OF SECTION 47 IS NOT FINAL BUT IS SUBJECT TO THE OCCURRENCE OF EVENTS UNDER SECTION 47A. IF THE EVENTS MENTIONED I N SECTION 47A OCCUR, THE EXEMPTIONS GRANTED UNDER SECTION 47 THE INCOME-TAX ACT ARE WIT HDRAWN. WHAT IS THE EFFECT OF SUCH WITHDRAWALS?. IN THE CASE OF THE TRANSFEROR COMPANY , THE INCOME IS TO BE TREATED AS INCOME OF THE YEAR IN WHICH THE TRANSFER HAS TAKEN PLACE. THI S SHOWS THAT THE SUBSEQUENT EVENT HAS THE EFFECT OF WITHDRAWING THE EXEMPTION GRANTED UNDER S ECTION 47 AND THE INCOME GOES BACK TO THE DATE OF TRANSFER. THUS, PROVISIONS OF SECTION 47 AR E WITHDRAWN ON OCCURRENCE OF THE EVENTS MENTIONED UNDER SECTION 47A AND THE TRANSACTION HAS TO BE TREATED AS A TRANSFER UNDER SECTION 47(V) OR (VI) OF THE ACT AS THE CASE MAY BE AND THE TRANSFEROR COMPANY IS LIABLE TO PAY THE CAPITAL GAINS TAX. IN THE PRESENT CASE DUE TO SEIZU RE OF THE ASSESSEE-COMPANY BEING A SUBSIDIARY OF THE TRANSFEROR COMPANY, THE PROVISION S OF SECTION 47(IV) HAVE CEASED TO APPLY, AND THE TRANSACTION HAS TO BE CONSIDERED AS A TRANS FER. SECTION 47A PROVIDES FOR WITHDRAWAL OF EXEMPTION AND THE RESULTANT TREATMENT TO BE GIVE N TO INCOME IN THE HANDS OF THE TRANSFEROR COMPANY. WHAT IS THE CONSEQUENTIAL EFFECT ON THE TR ANSFEREE COMPANY? WHAT SHOULD BE THE VALUE OF COST OF ACQUISITION IN ITS HANDS? THE ANSW ER LIES IN SECTION 49(3). SECTION 49(3) READS AS UNDER : 49(3) - NOTWITHSTANDING ANYTHING CONTAINED IN SUB- SECTION (1) WHERE THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET REFERRED TO IN CLAUSE (IV) OR, AS THE CASE MAY BE, CLAUSE (V).OF SECTION 47 IS DEEMED TO BE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS BY VIRTUE OF THE PROVISIONS CONTAINED IN SECTION 47A, THE COS T OF ACQUISITION OF SUCH ASSET TO THE TRANSFEREE-COMPANY SHALL BE THE COST FOR WHICH SUCH ASSET WAS ACQUIRED BY IT. SUB- SECTION (3) PROVIDES THAT IN THE HANDS OF THE TRANSFEREE, THE V ALUATION OF THE ASSET REGARDING WHICH THE EXEMPTION GRANTED UNDER SECTION (IV) HAS BEEN WITHD RAWN UNDER SECTION 47A OF THE ACT, IT SHALL BE THE COST FOR WHICH SUCH ASSET WAS ACQUIRED BY IT. THUS, IN THE PRESENT CASE, THE COST 1VR WHICH THE ASSESSEE HAS ACQUIRED THE ASSET SHOUL D BE THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION. 7. AT THE TIME OF HEARING BEFORE US, IT WAS ALSO SU BMITTED BY LD A.R. THAT THE DEPARTMENT FILED APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT BEING I NCOME TAX APPEAL NO.3160 OF 2010 AGAINST THE ORDER OF THE TRIBUNAL AND THE HONBLE H IGH COURT VIDE ITS ORDER DATED 7TH JULY, 2011 CONFIRMED THE ORDER OF THE TRIBUNAL. TO SUBSTA NTIATE HIS SUBMISSION, LD A.R. FILED A COPY OF THE SAID ORDER OF HONBLE HIGH COURT. 3362,3363&3436/M/13-TML DRIVELINES 7 8. CONSIDERING THE FACTS OF THE CASE BEFORE US, WE AGREE WITH LD A.,R. THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ESSAR OIL LTD (SUPRA), WHICH HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT AND LD CIT(A) H AS DECIDED THE ISSUE RELYING ON THE ABOVE SAID ORDER OF THE TRIBUNAL. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A). HENCE, WE UPHOLD HIS ORDER AND REJECT THE G ROUND OF APPEAL TAKEN BY THE DEPARTMENT. 9. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DIS MISSED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE DECIDE THE SECOND GROUND OF APPEAL AGAINST THE AO. ITA/3436 /MUM/2013-(H.V.AXLES LTD.),AY.2009-10-( AP PEAL BY THE AO). 11. THE SOLITARY ISSUE RAISED BY THE AO, IS ABOUT DEPRE CIATION ON THE REVISED WDV OF ASSETS ACQUIRED BY THE ASSESSEE FROM ITS HOLDING COMPANY.F OLLOWING OUR ORDER,IN THE CASE OF H.V. TRANSMISSION LTD.(AT PARAGRAPH 10),WE DECIDE THE EF FECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT APPEALS FILED BY T HE AO AND THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JANUARY, 2017. 10 , 2017 SD/- SD/- ( ( ( ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 10.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.