DCIT Rg. 3(2), MUMBAI V. M/s. LAFARGE INDIA LTD., MUMBAI

ITA 5031/MUM/2004

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6261 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-11-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 18-06-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Keywords: Capital asset; Depreciation; Transfer pricing; Cost of acquisition; Fair market value; Valuation report; Reassessment proceedings
• Section: 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 5031/MUM/2004 (ASSESSMENT YEAR: 2000-01) DCIT, RANGE 3(2) M/S. LAFARGE INDIA LTD. ROOM NO. 622, 6TH FLOOR BAKHTAWAR, 14TH FLOOR AAYAKAR BHAVAN, M.K. ROAD VS. 299, NARIMAN POINT, MUMBAI 021 MUMBAI 400020 PAN - AAACL 4159 L APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. PAHWA RESPONDENT BY: SHRI KANCHAN KAUSHAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) III, MUMBAI DATED 15.03.2004. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE W AS ENTITLED TO CLAIM OF DEPRECIATION WITH REFERENCE TO THE COST OF ACQUISITION OF TWO INDUSTRIAL UNITS PURCHASED FROM TISCO. 1(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE DIFFER ENCE IN THE COST OF ACQUISITION OF THE UNITS AND THEIR BOOK VALUE HAS T O BE TREATED AS GOODWILL IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 1(C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESS EE ITSELF HAS TREATED THE DIFFERENCE IN THE COST OF ACQUISITION O F A UNIT PURCHASED FROM M/S. RAYMONDS LTD. AND ITS BOOK VALUE AS GOODW ILL IN ITS BOOKS OF ACCOUNTS IN RESPECT OF A.Y. 2001-02. GROUND NOS. 2 & 3 ARE GENERAL IN NATURE. 3. BRIEFLY STATED, THE A.O. DISALLOWED AN AMOUNT OF ` 16.93 CRORES OUT OF THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE ON T HE GROUND THAT THE ASSESSEE HAS PAID PRICE IN EXCESS OVER AND ABOVE TH E BOOKS VALUE OF THE ASSETS PURCHASED IN THE ACQUISITION OF CEMENT UNITS OF THE TISCO. THE ASSESSEE IS A SUBSIDIARY OF M/S. LAFARGE INDIA HOLD ING PVT. LTD., WHICH HAS ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 2 BEEN ESTABLISHED PURSUANT TO THE APPROVAL GRANTED B Y THE FOREIGN INVESTMENT PROMOTION BOARD ON 19 TH FEBRUARY 1999. VIDE AGREEMENT DATED 9 TH MARCH 1999 THE ASSESSEE HAS ENTERED INTO A BUSINES S TRANSFER AGREEMENT WITH TISCO FOR ACQUISITION OF THEIR CEMENT UNITS AS GOING CONCERN. IT SEEMS THAT THE TISCO HAS INVITED BIDS THROUGH ITS MERCHAN T BANKERS JARDINE FLEMING INDIA SECURITIES LTD. AND THE ASSESSEE WAS THE HIGHEST BIDDER AT ` 550 CRORES. THE SAME WAS ACCEPTED BY THE TISCO IN I TS BOARD MEETING ON DECEMBER 18, 1998. THE ACTUAL ACQUISITION WAS CARRI ED OUT W.E.F. 1 ST NOVEMBER 1999 WHEN THE SAID UNITS WERE ACTUALLY TAK EN OVER AND USED IN ITS OWN PRODUCTION ACTIVITY. AFTER ACQUIRING THE CO MPANY UNITS AS GOING CONCERN THE ASSESSEE, ON THE BASIS OF VALUATION REP ORT OF M/S. K.S. AIYAR & CO., FIXED THE FAIR MARKET VALUE OF FIXED ASSETS AS ON THE DATE OF ACQUISITION AT ` 481.39 CRORES. THE BALANCE AMOUNT OF CONSIDERATION OF ` 68.61 CRORES WAS ATTRIBUTED TO THE NET CURRENT ASSETS TAKEN OVER . THE ASSESSEE ACCORDINGLY CLAIMED DEPRECIATION ON THE VALUE OF AS SETS AT ` 481.39 CRORES. IN THE COURSE OF ASSESSMENT THE A.O. ASKED FOR THE WDV OF THE ASSETS OF TISCO. SINCE THE ASSESSEE EXPRESSED ITS INABILITY TO FURNI SH THE DETAILS AS THEY PURCHASED THE ON THE BASIS AS GOING CONCERN, THE A. O. OBTAINED THE INFORMATION REGARDING WDV FROM TISCO AND NOTICED TH AT THE SAID COMPANY HAS SHOWN THE BOOK VALUE OF FIXED ASSETS AT ` 3,45,95,29,192/- AND AFTER CLAIMING TRANSFER EXPENSES AND FEES TO MERCHANT BAN KERS, OFFERED PROFITS ON SALE OF NET ASSETS OF CEMENT DIVISION AT ` 1,25,25,81,495/-IN THEIR BOOKS OF ACCOUNT. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE HAD PAID MORE AMOUNT THAN THE BOOK VALUE AND THE DIFFERENCE AMOUNT WAS T O BE CONSIDERED AS GOODWILL PAYMENT AND ACCORDINGLY AFTER DISCUSSION A BOUT THE PROVISIONS OF SECTION 43(1), REPORT OF THE REGISTERED VALUER, DET ERMINED THE GOODWILL VALUE AT THE DIFFERENCE BETWEEN THE AMOUNT ADOPTED BY THE ASSESSEE AND THE AMOUNT SHOWN IN THE BOOKS OF TISCO AND DEPRECIATION ON THE AMOUNT OF GOODWILL DETERMINED AT ` 1,35,44,07,808/- WAS DISALLOWED THEREBY MAKING ADDITION OF ` 16.39 CRORES. BEFORE THE CIT(A) IT WAS CONTENDED TH AT THE ASSESSEE HAS ACQUIRED FIXED ASSETS AND CURRENT ASSE TS OF THE UNIT IN AN OPEN BID AND ON THE BASIS OF THE REPORT OF THE REGISTERE D VALUER THE VALUE WAS ACCORDINGLY CAPITALISED TO THE EXTENT OF ` 481.39 CRORES AND ASSESSING OFFICERS ACTION IN TAKING THE WDV OF TISCO WAS NOT CORRECT AS EXPLANATION ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 3 3 TO 43(1) DOES NOT APPLY IN ASSESSEES CASE AS THE SE TWO COMPANIES ARE INDEPENDENT AND NOT RELATED AND FURTHER THE A.O. HA S NOT CORRECTLY APPRECIATED THE REGISTERED VALUERS REPORT AND THE METHOD ADOPTED. THE ASSESSEE RELIED ON THE JUDGMENTS OF THE HON'BLE SUP REME COURT IN THE CASE OF KALOORAM GOVINDRAM VS. CIT 57 ITR 355 AND ALSO G UZDAR KAJORA COAL MINES LTD. VS. CIT VS. CIT 85 ITR 599 WITH REFERENC E TO THE COST OF A PARTICULAR ASSET. HE ALSO SUBMITTED THAT ASSESSING OFFICERS RELIANCE ON EXPLANATION 3 TO SEC.43(1) WAS NOT CORRECT AND RELI ED ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF JOGTA COAL CO. LTD. VS. CIT 36 ITR 521 TO CONTEND THAT THE COST TO BE CALCULATED FOR T HE PURPOSE OF DEPRECIATION ELEMENT IS THE COST OF THE ASSESSEE AND NOT TO THE PERSON WHO MAKE THE SALE. IT IS ALSO ITS CONTENTION THAT WHEN THE ASSESSEE HA S NOT MADE ANY PROVISION FOR GOODWILL AND PAID ACCORDING TO THE FAIR MARKET VALUE OF ASSETS THE QUESTION OF GOODWILL DOES NOT ARISE AS THERE WAS NO SPECIFIC MENTION IN THE AGREEMENT FOR PAYMENT OF ANY GOODWILL. WITH REFEREN CE TO THE RELIANCE ON THE VALUE OF SEPARATE ASSETS ALSO THE ASSESSEE RELIED O N THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF ASHWIN VA NASPATI INDUSTRIES VS. CIT 255 ITR 26. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE CIT(A) VIDE PARA 3.2 OF THE ORDER DELETED THE ADDITION. HI S FINDINGS ARE AS UNDER: - 3.2 I HAVE CONSIDERED THE FOREGOING SUBMISSIONS AN D I HAVE PERUSED THE IMPUGNED ORDER OF ASSESSMENT. I AM OF THE VIEW THAT ON THE FACTS OF THE CASE BEFORE ME INVOKING THE PROVISIONS OF EXPLA NATION 3 TO SECTION 43(1) WAS NOT JUSTIFIED SO AS TO REDUCE THE COST OF ACQUISITION. IT IS QUITE EVIDENT THAT THE ASSESSING OFFICER HAS NOT MADE OUT A CASE TO IN ANY MANNER SHOW THAT THE TRANSACTION OF SALE OF THE CEM ENT UNIT AS A GOING CONCERN WAS IN ANY MANNER COLLUSIVE OR BY WAY OF A TACIT UNDERSTANDING WITH THE SELLER TO ATTACH HIGHER VALUE TO THE COST OF ACQUISITION OF CAPITAL ASSETS. THE DEAL IS OBVIOUSLY AN ARMS LENGTH DEAL. THE APPELLANT HAS NOT ATTACHED THE COST OF ACQUISITION TO THE ASSETS ARBI TRARILY AND WITHOUT ANY BASIS. THE COST HAS BEEN ASSESSED AND WORKED OUT BY AN EXPERT AGENCY AND UNLESS THE EXPERT ADVICE IS PROVED TO BE MANIPU LATIVE OR WORKED UP WITH REFERENCE TO SOME TANGIBLE PIECE OF EVIDENCE, THE ASSESSING OFFICER, IN MY OPINION, CANNOT DISREGARD THE VERACITY OF THE EXPERT VALUATION. MOREOVER, WHEN THERE IS NO CLAUSE IN THE AGREEMENT RELATING TO GOODWILL AND WHEN THE APPELLANT HAS NOT USED THE BRAND NAME OF THE SELLER, THERE IS NO GOOD REASON FOR THE ASSESSING OFFICER TO IMPO RT THE ELEMENT OF GOODWILL IN THE TRANSACTION. THE CASE LAW CITED BY THE APPELLANT ON THE POINT OF COST OF ACQUISITION IS QUITE APT AND APPOS ITE ON THE ISSUE. HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES OF THE CA SE I AM OF THE CONSIDERED VIEW THAT DEPRECIATION WAS ALLOWABLE TO THE APPELLANT WITH ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 4 REFERENCE TO THE COST OF ACQUISITION AS SHOWN BY TH E APPELLANT. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW DEPRECIATION ON THAT BASIS. 4. THE LEARNED D.R. ELABORATELY TOOK US THROUGH THE OR DER OF THE A.O. TO SUBMIT THAT AS PER THE PROVISIONS OF THE ACT, THE A .O. WAS WELL WITHIN HIS RIGHTS TO DETERMINE THE COST OF THE ASSET AND SINCE THE REGISTERED VALUERS REPORT WAS SUBSEQUENT TO THE DATE OF ACQUISITION OF THE UNIT THE REPORT CANNOT BE RELIED UPON AS IT ONLY SUITES THE VALUATI ON ADOPTED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. SINCE NO REASON WAS GIVEN FOR PAYING MORE AMOUNT THAN THE BOOK VALUE OF THE ASSETS, THE A.O. HAS COR RECTLY TREATED THE AMOUNT AS GOODWILL AND DENIED DEPRECIATION. HE ALSO SUBMIT TED THAT IN THE LATER YEAR THE ASSESSEE ITSELF HAS TREATED THE AMOUNT AS GOODW ILL AND ACCORDINGLY THE ACTION OF THE A.O. SHOULD HAVE BEEN UPHELD BY THE C IT(A). IT IS ALSO HIS SUBMISSION THAT THE CONDITIONS OF SECTION 43(1), EX PLANATION (3) ARE SATISFIED AND SINCE THE ORDER WAS PASSED BY THE JOINT COMMISS IONER THERE WAS NO NEED FOR REFERRING TO THE JOINT COMMISSIONER FOR AP PROVAL. HE RELIED ON THE ORDERS OF THE A.O. IT IS ALSO HIS FURTHER SUBMISSIO N THAT THE REPLACEMENT VALUE ADOPTED BY THE VALUER WAS NOT CORRECT AND IT ONLY SUITS TO THE ASSESSEES VALUATION ADOPTED IN THE BOOKS OF ACCOUN T. HE VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. 5. THE LEARNED COUNSEL IN REPLY STATED THE FACTS THAT THE ASSESSEE HAS OFFERED THE BID IN OPEN TENDER AND BEING THE HIGHES T BIDDER PURCHASED THE SAME AT ` 550 CRORES AND SINCE THE A.O. ALSO ACCEPTS THE SAME AS SLUMP SALE NO ITEMISED PURCHASE OF ASSETS CAN BE ATTRIBUTED IN A SLUMP SALE AS PER THE PROVISIONS. IT IS ALSO HIS SUBMISSION THAT THE A.O. HAS NOT GIVEN ANY FINDING THAT THE TRANSACTION IS COLLUSIVE TRANSITION OR THA T THERE IS A TACIT UNDERSTANDING TO CLAIM DEPRECIATION AT HIGHER VALUE AS REQUIRED UNDER EXPLANATION 3 TO SECTION 43(1). HE ALSO CONTESTED A SSESSING OFFICERS FINDINGS THAT THE VALUERS REPORT WAS UNDATED TO SUBMIT THAT THE REPORT WAS SUBMITTED VIDE LETTER DATED 05.06.2000 AND THE VALU ATION AS ON 01.11.1999 WAS MADE. IT WAS HIS SUBMISSION THAT VALUATION WAS ALWAYS MADE SUBSEQUENTLY BOTH UNDER WEALTH TAX ACT AND INCOME T AX ACT AND VALUATION WAS DONE LATER WITH REFERENCE TO A PARTICULAR DATE AND THIS PRINCIPLES WAS ACCEPTED IN THE THIRD MEMBER DECISION IN THE CASE O F CHITRA PUBLICITY ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 5 COMPANY (P) LTD. VS. ACIT 127 TTH (AHD)(TM) 1 AND F URTHER IN PRAXAIR INDIA (P) LTD. VS. ACIT IN ITA NO. 789(BANG)/08. IT WAS ALSO HIS SUBMISSION THAT ACCORDING TO AS 10 PARA 35 THE FAIR MARKET VALUE HA S TO BE CONSIDERED AS COST OF ASSET IN THE CASE OF SLUMP SALE AND ACCORDI NGLY THE ASSESSEE HAS OBTAINED THE REGISTERED VALUERS REPORT AND THE A.O . HAS NOT GIVEN ANY VALID REASON IN REJECTING THE REPORT ON MERITS. JUST BECA USE THERE WAS A LESSER WDV IN THE CASE OF BOOKS OF ACCOUNT OF TISCO THE SA ME CANNOT BE ADOPTED AS THE VALUE OF ASSETS PURCHASED IN A SLUMP SALE IN AN OPEN BID MEANT FOR ACQUISITION OF THE UNITS. SINCE THE PARTIES ARE UNR ELATED AND THE VALUATION ADOPTED BY THE ASSESSEE HAS A BASIS OF REGISTERED V ALUERS REPORT, ASSESSING OFFICER IS NOT CORRECT IN REJECTING ASSESSEES VALU ATION WITHOUT ANY EVIDENCE AND THIS ASPECT WAS CORRECTLY EXAMINED BY THE CIT(A ). HE SUPPORTED THE ORDER OF THE CIT(A). 6. WE HAVE EXAMINED THE ISSUE AND CONSIDERED THE ARGUM ENTS OF BOTH THE PARTIES. AS THE FACTS INDICATE THE PARTIES ARE UNRELATED AND THE ASSESSEE PURCHASED THE CEMENT UNITS AT SONADIH IN RAIPUR DIS TRICT OF MADHYA PRADESH AND SINGHBUM DISTRICT OF BIHAR AS A SLUMP S CALE W.E.F. FROM 01.11.1999. UNDER THE BUSINESS TRANSFER AGREEMENT T HE ASSESSEE NOT ONLY ACQUIRED THE FIXED ASSETS OF THE SAID UNIT BUT ALSO THE CURRENT ASSETS OF THE SAME UNITS INCLUDING THE CURRENT LIABILITIES FOR WH ICH THE TOTAL CONSIDERATION OF ` 550 CRORES WAS PAID. IT IS ALSO A FACT THAT THE SAI D TISCO HAS ARRIVED AT THE PROFIT ON SALE OF ` 125.26 CRORES AFTER CLAMING TRANSFER EXPENSES AND F EES TO MERCHANT BANKERS. THIS IS THE BASIS FOR ASSESSIN G OFFICERS OPINION THAT THE COST OF FIXED ASSETS ACQUIRED BY THE ASSESSEE S HOULD BE THE BOOK VALUE OF TISCO. ACCORDINGLY HE RESTRICTED THE COST OF THE AS SETS TO THE ABOVE AMOUNT THEREBY TREATING THE BALANCE AMOUNT AS GOODWILL AND DENIED DEPRECIATION. IT IS ALSO A FACT THAT THE AGREEMENT DOES NOT SPEAK OF ANY GOODWILL PAYMENT AND THE ASSESSEE HAS ADJUSTED THE ENTIRE CONSIDERAT ION PAID BETWEEN FIXED ASSETS AND NET CURRENT ASSETS. IT IS ALSO A FACT TH AT IN THE NEXT ASSESSMENT YEAR ASSESSEE ACQUIRED ANOTHER UNIT FROM M/S. RAYMO NDS LTD. AND THE ASSESSEE TREATED THE DIFFERENCE BETWEEN THE FAIR MA RKET VALUE OF THE ASSETS AND THE PAYMENT MADE AS GOODWILL AND MADE ENTRIES I N THE BOOKS OF ACCOUNT ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 6 ACCORDINGLY WHERE AS IN THIS YEAR THE VALUE PAID WA S FOR FIXED ASSETS AND NET CURRENT ASSETS AND GOODWILL WAS INVOLVED. 7. IN ORDER TO CONSIDER THE ACTION OF THE A.O. IT IS NECESSARY TO EXTRACT THE PROVISIONS OF SECTION 43(1) AND EXPLANATION 3, WHICH ARE AS UNDER: - (1) IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNL ESS THE CONTEXT OTHERWISE REQUIRES (1) ACTUAL COST MEANS THE ACTUAL COST OF THE ASSE TS 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 AUTHO RITY: [ PROVIDED THAT . . EXPLANATION 3.WHERE, BEFORE THE DATE OF ACQUISITIO N BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PERSO N FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND THE [ASSESSING] O FFICER IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUCH ASSETS, DI RECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTION OF A LIABILITY TO I NCOME-TAX (BY CLAIMING DEPRECIATION WITH REFERENCE TO AN ENHANCED COST), T HE ACTUAL COST TO THE ASSESSEE SHALL BE SUCH AN AMOUNT AS THE [ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE [JOINT COMMISSIONER], DETERMINE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 8. IN OUR OPINION SECTION 43(1) IS CLEAR THAT THE ACTU AL COST TO BE CONSIDERED FOR THE PURPOSE OF SECTION 32 SHOULD BE THE ACTUAL COST PAID BY THE ASSESSEE. SINCE THE COST HAS NOT BEEN DIRECTLY OR INDIRECTLY MET BY ANY OTHER PERSON OR AUTHORITY, THE COST PAID BY THE ASS ESSEE FOR ACQUISITION OF THE ASSETS OF THE UNITS IS THE COST UNDER SECTION 43(1) . HOWEVER, EXPLANATION (3) MAKES IT CLEAR THAT WHERE THE ASSETS ARE USED AT AN Y TIME BY ANY OTHER PERSON FOR THE PURPOSE OF HIS BUSINESS OR PROFESSIO N AND THE A.O. IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUCH ASSET S DIRECTLY OR INDIRECTLY TO THE ASSESSEE WAS REDUCTION OF LIABILITY TO TAX FOR CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COST, THE ACTUAL COST OF THE ASSETS SHALL BE SUCH AN AMOUNT AS THE A.O. MAY DETERMINE HAVING REGARD TO A LL THE CIRCUMSTANCES OF THE CASE. AS RIGHTLY CONSIDERED BY THE CIT(A) THE P ARTIES ARE UNRELATED AND THE TRANSACTION IS AT ARMS LENGTH BASIS. THE REGIST ERED VALUER ALSO VALUED THE ASSETS AS ON 01.11.1999, THE PRICE OF WHICH WAS CON SIDERED TO BE THE COST OF FIXED ASSET ACQUIRED AND THE BALANCE TO THE CURRENT ASSETS INCLUDING THE CURRENT LIABILITIES. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INVOKE EXPLANATION (3) AS THE A.O. NOWHERE STATED THAT THE MAIN PURPOSE OF SUCH A ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 7 VALUATION WAS FOR REDUCTION OF LIABILITY TO TAX. IT IS A DIRECT ACQUISITION BY THE ASSESSEE COMPANY FROM ANOTHER PUBLIC LIMITED COMPAN Y IN AN OPEN BID, BEING THE HIGHEST BIDDER. AS PER AS 10 PARA 35 THE ASSESSEE WAS SUPPOSED TO TAKE THE VALUE ON THE FAIR BASIS AS DETERMINED B Y COMPETENT VALUERS. PARA 35 OF AS 10 IS AS UNDER: - 35. WHERE SEVERAL FIXED ASSES ARE PURCHASED FOR A CONSOLIDATED PRICE, THE CONSIDERATION SHOULD BE APPORTIONED TO THE VARI OUS ASSETS ON A FAIR BASIS AS DETERMINED BY COMPETENT VALUERS. 9. AS SEEN FROM THE ASSESSMENT ORDER THE A.O. HAS NOT REJECTED THE VALUATION OF FIXED ASSETS DONE BY THE REGISTERED VA LUER ON MERITS. HIS OBJECTION TO THE VALUATION REPORT WAS BASICALLY TWO FOLD (1) THAT THE SURVEY REPORT DOES NOT HAVE ANY DATE AND COULD HAVE BEEN D ATED SUBSEQUENT TO THE SURVEY WHICH WAS DONE AFTER MARCH 31, 2000 TO APRIL 16, 2000. THIS OBSERVATION OF THE A.O. ABOUT THE SURVEY REPORT WAS NOT CORRECT AS THE REPORT WAS DATED 5 TH JUNE 2000. SO, MANY OF THE OBSERVATIONS MADE BY TH E A.O. WITH REFERENCE TO THE DATE OF THE REPORT ITSELF ARE WITHOUT ANY FOUNDATION. (2) THE OTHER OBSERVATION IS THAT THE METHOD ADOPTED BY THE REGISTERED VALUER ON NET REPLACEMENT COST WAS ONLY TO ARRIVE AT THE EXAC T AMOUNT WHICH THE ASSESSEE HAS APPORTIONED TOWARDS FIXED ASSETS. THIS OBSERVATION ALSO IS NOT CORRECT. SINCE THE ASSETS ARE ACQUIRED ON SLUMP SAL E BASIS AND INDIVIDUAL ASSETS ARE NOT PRICED OR PURCHASED ITEM-WISE, THE A SSESSEE AS PER THE ACCOUNTING STANDARD 10 TO BE ADOPTED FOR THE PURPOS E OF MAINTAINING THE BOOKS OF ACCOUNT, HAS OBTAINED A VALUATION REPORT W HICH HAS TAKEN THE NET REPLACEMENT COST METHOD AND ARRIVED AT THE AMOUNT A S ` 481.61 CRORES WHICH THE ASSESSEE HAS ADOPTED IN THE BOOKS OF ACCO UNT. THEREFORE, THE ASSESSING OFFICERS OBSERVATION THAT THE VALUE ADOP TED BY THE ASSESSEE IS EXACTLY TALLYING WITH THE SUBSEQUENT VALUATION BY T HE SURVEYOR IS WITHOUT ANY BASIS. ON THE BASIS OF THE VALUATION REPORT ASS ESSEE HAS ADOPTED THE VALUE. IT IS ALSO A FACT THAT THE SAID TISCO HAS SH OWN THE PROFIT ON THE BASIS OF THE BOOK VALUE. THE A.O., HOWEVER, HAS NOT ANALY SED THE ACTUAL WDV IN THE HANDS OF THE TISCO. WHAT HE HAS ADOPTED IS THE BOOK VALUE IN THE BOOKS OF TISCO WHICH INCIDENTALLY WILL BE DIFFERENT FROM THE ACTUAL WDV FOR THE PURPOSE OF INCOME TAX. THE A.O. HAS NOT EVEN BOTHER ED TO EXAMINE WHAT IS THE WDV OF THE ASSETS IN THE BOOKS OF TISCO. IT IS ALSO SUBMITTED THAT ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 8 EVENTHOUGH THE SAID TISCO HAS SHOWN THE PROFIT ON S ALE OF NET ASSETS OF THE CEMENT DIVISION AND TAKEN THE INCOME TO THE P & L A CCOUNT, THE SAID COMPANY ADJUSTED THE COST OF SALE IN THE WDV OF THE ASSETS FOR THE PURPOSE OF INCOME TAX AND OFFERED INCOMES ONLY UNDER SECTIO N 115JA OF THE INCOME TAX ACT ON THE BOOK PROFITS MADE. HERE ALSO THE A.O . FAILED TO CONSIDER THE NET CONSIDERATION ADOPTED BY THE TISCO FOR ADJUSTME NTS IN THE BOOKS OF ACCOUNT AND THE VALUES ADOPTED FOR CURRENT ASSETS. THE COMPUTATION IN THE HANDS OF THE TISCO IS QUITE DIFFERENT FROM THE COMP UTATION TO BE MADE IN THE HANDS OF THE ASSESSEE. WE ARE OF THE OPINION TH AT THE A.O. HAS NOT EXAMINED THE FACTS AND ARRIVED AT WRONG CONCLUSIONS WITHOUT ANY BASIS. 10. IN THE CASE OF PRAXAIR INDIA (P) LTD. VS. ACIT IN I TA NO. 789(BANG)/08 THE FACTS WERE THAT THE SAID COMPANY ACQUIRED CERTA IN CYLINDERS AND THE A.O. REDUCED THE COST OF ACQUISITION TO THE COST OF THE PREVIOUS OWNER IN THE REASSESSMENT PROCEEDINGS. IT WAS HELD THAT THE ASSE TS WERE USED BY THE PRAXAIR INDIA FOR THEIR OWN BUSINESS AND THEREFORE IT CANNOT BE SAID THAT THE ASSESSEES MAIN PURPOSE FOR THE TRANSFER OF THE SAI D ASSETS DIRECTLY OR INDIRECTLY TO THE ASSESSEE WAS REDUCTION OF LIABILI TY TO INCOME TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COST. IT IS ALSO FURTHER HELD THAT THE ASSESSEE HAS PROCURED THE VALUATION FROM A CHARTERE D ENGINEER IN ORDER TO CONSIDER THE SLUMP SALE IN ACCORDANCE WITH A VALUE FOR CLAIMING DEPRECIATION AS ENTITLED TO IT. THE FACTS ARE MORE OR LESS SIMIL AR TO THE PRESENT CASE. THE PURPOSE WITH WHICH THE ASSESSEE ACQUIRED THE CEMENT DIVISION WAS TO CARRY ON THE BUSINESS IN THE MANUFACTURE AND SALE OF CEME NT. NEITHER ACQUISITION OF THEIR BUSINESS NOR THE ASSETS COMPRISED THEREIN NOR THE VALUATION THEREOF WAS WITH THE PURPOSE OF REDUCING THE INCOME TAX LIA BILITY OF THE ASSESSEE BY CLAIMING HIGHER DEPRECIATION. IN FACT THE ASSESSEE HAS ACQUIRED A RUNNING CEMENT UNIT IN AN OPEN TENDER BEING THE HIGHEST BID DER AND EXCLUDED THE CURRENT ASSETS AS PER THE BOOK VALUE. THE BALANCE I S CONSIDERED FOR COST OF FIXED ASSETS ON THE BASIS OF THE REGISTERED VALUER S REPORT. WE DO NOT SEE ANY REASON TO REDUCE THE COST, WHICH IS ACTUALLY THE CO ST TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 43(1). 11. IN THE CASE OF CHITRA PUBLICITY COMPANY (P) LTD. VS . ACIT 172 TTJ (AHD) (TM) 1 IT WAS HELD AS UNDER: - ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 9 17. AFTER CAREFUL CONSIDERATION OF ABOVE PROVISION S AND FACTS AND CIRCUMSTANCES OF THE CASE, I AM UNABLE TO ACCEPT TH E STAND OF THE REVENUE. AS NOTED ABOVE ACTUAL COST SHOULD ORDINARI LY MEAN REAL COST OR REAL WORTH OF ASSETS. IF IT IS NOT MARKET VALUE, TH EN WHAT IS IT? MECHANISM TO TAKE WDV AS PROVIDED IN EXPLN. 2 TO S. 43(6)(C) IS NOT AVAILABLE IN EXPLN. 3 TO S. 43(1). FURTHER, ASSETS WHOSE ACTUAL COST IS TO BE DETERMINED UNDER EXPLN. 3 ARE SECOND HAND AND IT IS ALWAYS DIFFICULT TO FIND ACTUAL COST OR VALUE OF SUCH ASSETS AS COMPARE D TO NEW ASSETS. IN THE CASE OF TRANSFER OF AN ASSET BETWEEN TWO UNCONN ECTED PARTIES PRICE FIXED IS ALP GOVERNED BY MARKET CONDITION. THIS ALP BETWEEN TWO UNCONNECTED PARTIES IS NOTHING BUT MARKET VALUE OF THE ASSET. THIS ALP HAS TO BE TAKEN AS THE 'ACTUAL COST' FOR PURPOSES O F DEPRECIATION. THERE IS NO WAY TO IGNORE IT AND IT IS NOT POSSIBLE TO RECOR D MERELY THAT THE MAIN PURPOSE OF TRANSACTION IS THE REDUCTION OF INCOME-T AX LIABILITY. SUCH ALP OR MARKET VALUE CANNOT HAVE A DIFFERENT MEANING EVE N IN CASE OF A TRANSACTION BETWEEN CONNECTED AND RELATED PARTIES I F FIXED BONAFIDELY AS PER MARKET CONDITIONS. THERE IS NO PROHIBITION ON C ONNECTED PARTIES TO CARRY ARMS LENGTH TRANSACTIONS WHERE REAL VALUE OF ITEM TRANSFERRED IS PAID......... 12. WITH REFERENCE TO THE REPORT OF THE REGISTERED VALU ER AND OBJECTION OF AO IN ADOPTING THE VALUES AS PER THEIR REPORT ON T HE METHOD ADOPTED, THE OBSERVATIONS IN THE ABOVE CASE ARE RELEVANT AND ARE AS UNDER: - 18.3 IT IS WELL-KNOWN THAT REGISTERED VALUERS ARE EXPERTS AND VALUE AND RELIABILITY OF THEIR OPINION WOULD DEPEND UPON THE MATERIAL CONTAINED IN THEIR REPORT. THEY ARE COMPETENT TO FIX VALUE OF PROPERTIES FOR SEVERAL EARLIER YEARS. EVEN OTHERWISE WTO IN THE WEALTH-TAX PURPOSES IS REQUIRED TO DETERMINE IN THE PRESENT, THE VALUE OF ASSETS AS ON THE VALUATION DATES WHICH MAY BE FIVE OR SEVEN YEARS EA RLIER. IF THIS IS NOT POSSIBLE, AS IS BEING INFERRED BY THE LEARNED CIT(A ) AND BY THE LEARNED AM, THEN SCHEME OF FIXATION OF VALUE OF ASSETS UNDE R THE WT ACT CANNOT WORK. SUCH A VIEW WOULD DEFEAT THE VERY PURPOSE OF THE WT ACT AND, THEREFORE, CANNOT BE ACCEPTED AS CORRECT. 13. IN VIEW OF THE VARIOUS PRINCIPLES CONSIDERED BY THE COORDINATE BENCHES IN THE ABOVE STATED CASES, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) THAT THE A.O. HAS NOT MADE OUT A CASE FOR RE DUCING THE ACTUAL COST. SINCE THE DEAL BETWEEN THE TISCO AND THE ASSESSEE C OMPANY WAS AT ARMS LENGTH PRICE AND SINCE THE PARTIES ARE NOT RELATED AND THERE IS NO EVIDENCE THAT THE TRANSACTION IS A COLLUSIVE ONE OR DONE WIT H AN INTENTION TO REDUCE THE TAX LIABILITY AND ALSO FURTHER THAT THERE IS NO CLAUSE FOR PAYMENT OF GOODWILL BY THE ASSESSEE IN THE BUSINESS TRANSFER A GREEMENT, THE ASSESSING OFFICERS ACTION IN CONSIDERING THE PRICE PAID FOR ACQUIRING THE ASSETS AT MORE THAN THE BOOK VALUE IN THE HANDS OF THE TISCO TO BE TREATED AS GOODWILL HAS ITA NO. 5031/MUM/2004 M/S. LAFARGE INDIA LTD. 10 NO BASIS AT ALL. IN VIEW OF THIS, WE UPHOLD THE ORD ER OF THE CIT(A) AND REJECT REVENUES GROUND. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH NOVEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.