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

ITA 5623/DEL/2012

• Counselvise Citation: 562320114 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: R K KAPOOR
• Keywords: Gift; Depreciation; Valuation report
• Section: 143(3); 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. KULDIP SINGH , JM IT(TP) A NO. 5623 /DEL/2012 : ASSTT. YEAR : 2008 - 09 M/S CON T INENTAL DEVICE INDI A LTD., C - 120, NARAINA INDUSTRIAL AREA, NEW DELHI - 110028 VS DY. COMMISSIONER OF INCOME TAX CIRCLE - 3(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO . AA A CC1835E ASSESSEE BY : SH. R. K. KAPOOR, CA REVENUE BY : SH. RAVI JAIN , CIT DR DATE OF HEARING : 28 .10 .2015 DATE OF PRONOUNCEMENT : 31 .12 .2015 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 08.09.2012 OF THE AO . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF ASSESSEE S CASE IN MAKING ADDITIONS OF RS.8,98,351/ - ON WHOLLY I LLEGAL, ERRONEOUS AND UNTENABLE GROUNDS . 2. THE ORDER OF ASSESSMENT PASSED BY LD. AO AT THE INSTANCE OF DRP U/S 143(3)/144C IS BAD IN LAW. IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 2 3(A) . THAT THE HON BLE DRP AS WELL AS LEARNED AO HAS ERRED IN LAW, ON FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSE E S CASE IN MAKING ADDITION ON ACCOUNT OF DISALLOWANCE OF ALLEGED EXCESSIVE DEPRECIATION OF RS.8,91,770/ - IN RESPECT OF ASSETS PURCHASED FROM DELTRON LTD. (B) THAT THE HON BLE DRP AS WELL AS LEARNED AO HAS ERRED IN LAW, ON FACTS AND IN THE CIRCUMSTANCES O F THE ASSESSEE S CASE IN UPHOLDING THAT THE ASSETS OF DELTRON LTD. WERE ACQUIRED BY THE ASSESSEE AT A HIGHER PRICE WITH A VIEW TO REDUCE THE LIABILITY OF INCOME TAX BY CLAIMING HIGHER DEPRECIATION WITH REFERENCE TO ENHANCED COST, ON WHOLLY ERRONEOUS AND IL LEGAL GROUNDS. (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IT MAY BE HELD THAT THE PLANT & MACHINERY, BUILDING ETC. WERE PURCHASED ON THE BASIS OF VALUATION OF THE GOVT. APPROVED VALUERS, WHO WERE EXPERTS, AND AS SUCH INVOKING OF THE PROVISION OF EXPLANATION 3 TO SECTION 43(1) WAS UNCALLED FOR AND UNJUSTIFIED. (D) THAT THE HON BLE DRP AS WELL AS LEARNED AO HAVE FAILED TO APPRECIATE THAT THE WRITTEN DOWN VALUE AS PER INCOME TAX RULES, OF DELTRON LTD. OF VARIOUS ASSETS WAS LOW, AS COST OF ACQUISI TION OF PLANT & MACHINERY, BUILDING ETC. IN THE R&D UNIT OF DELTRON LTD. HAD BEEN ALLOWED TO THE DELTRON LTD. AS SCIENTIFIC RESEARCH 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. IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 3 5 . THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT PREJUDICE TO THE OTHER GROUNDS RAISED HEREIN. 6. THAT THE PENALTY PROCEEDINGS INITIATED BY RELYING ON SECTION 271(1)(C) IS ON WHOLLY ILLEGAL AND UNTENABLE GROUNDS SINCE THERE WAS NO CONCEALMENT OF ANY INCOME NOR SUBMISSION OF INACCURATE PARTICULARS OF INCOME, NOR ANY DEFAULT ACCORDING TO LAW BY THE ASSESSEE. 7. THAT THE CHARGING OF INTEREST U/S 234D IS BAD IN LAW AND IS PRAYED NOT TO BE UPHELD. 3 . GROUND NO. 5 IS GENERAL IN NATURE AND G ROUND NO. 6 IS RAISED PREMATURELY, SO THESE GROUNDS DO NOT REQUIRE ANY COMMENT ON OUR PART. 4 . VIDE GROUND NOS. 1 TO 3, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF ADDITION OF RS.8,91,770/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXCESSIVE DEPRECIAT ION IN RESPECT OF ASSETS PURCHASED FROM DELTRON LTD. 5 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS.2,14,95,964/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS THE ACT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSE SSEE HAD CLAIMED DEPRECIATION ON PLANT & MACHINERY PURCHASED FROM ASSO CIATE CONCERN M/S DELTRON LTD. H E CONSI DERED THE DEPRECIATION IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 4 OF RS.8,91,770/ - AS EXCESSIVE AND MADE THE DISALLOWANCE OF THE SAID AMOUNT. THE RELEVANT OBSERVATION HAS BEEN MADE BY THE AO IN PARA 2.4 OF THE ASSESSMENT ORDER DATED 08.09.2012 , FOR THE COST OF REPETITION, THE SAME IS NOT REPRODUCED HEREIN. 6 . NOW THE ASSESSEE IS IN APPEAL AGAINST THE ORDER PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE ACT. 7. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 16.10.2015 IN ASSESSEE S OWN CASE FOR THE EARLIER ASSESSMENT YEARS 2005 - 06 TO 2006 - 07 AND 2009 - 10 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). 8. IN HIS RIVAL SUBMISSION THE LD. CIT DR ALTHOUGH SUPPO RTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT A N IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE PRECEDING ASSESSMENT YEARS 2005 - 06 TO 2007 - 08 AND THE SUCCEEDING YEAR 2009 - 10 IN ITA NOS. 134/DEL/2009, 1319/DEL/2011, 5656/DEL /2010 AND 316/DEL/2013 RESPECTIVELY, COPY OF THE SAID ORDER DATED 16.10.2015 WAS IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 5 FURNISHED DURING THE COURSE OF HEARING WHICH IS PLACED ON RECORD AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 8 TO 20 OF THE SAID ORDER WHICH READ AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS. WE FIND THAT THE ASSESSEE COMPANY, A PRIVATE LIMITED COMPANY, HAS ACQUIRED ELECTRONIC BUSINESS FROM A PUBLIC LIMITED COMPANY KNOWN AS M/S DELTRON LIMITED AS A GOING CONCERN VIDE AGREEMENT DATED 27.9.20 04 FOR A CONSIDERATION OF RS. 7.54 CRORE. WE FIND THAT IN THE ASSESSMENT ORDER, THE AO HAS OBSERVED THAT THE AFORESAID FACT OF PURCHASE OF FIXED ASSETS WAS DISCLOSED BY THE AR ONLY AFTER THE PROBE BY HIM DURING THE ASSESSMENT PROCEEDINGS AND NO SUCH DETAI LS HAVE BEEN FURNISHED IN ANY MANNER IN THE AUDIT REPORT PAPERS ENCLOSED WITH THE RETURN OF INCOME. HE HAS ALSO NOTICED THAT BOTH THE COMPANIES DEAL IN ELECTRONIC BUSINESS AND HAVE SAME ADDRESS AT C - 120, NARAINA INDUSTRIAL AREA AND RUN UNDER THE SAME MANA GEMENT AS THE DIRECTORS/SHAREHOLDERS ARE ALSO 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 THE AO BY THE SAID TRANSACTION THOUGH M/S DELTRON LIMITED HAD MADE A SHORT TERM CAPITAL 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 INCOME OF NIL FOR THE R ELEVANT ASSESSMENT YEAR 2005 - 06.FURTHER, THE AO OBSERVED THAT, 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 MARKETABLE COMMODITIES, SO AS TO HAVE ANY VALUAT ION OF THEIR MARKET PRICE. BOTH THE COMPANIES KNEW THAT THERE IS NO MARKET FOR THE OLD PLANT AND MACHINERY EXCEPT FOR THE OPINION THAT THE ASSETS OF ONE COMPANY DOING THE SAME IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 6 BUSINESS ARE USED BY THE OTHER. IN THE ABSENCE OF ANY MARKET VALUATIONS THE VA LUATIONS, REPORT OBTAINED FROM THE REGISTERED VALUER ARE ONLY SELF SERVICE DOCUMENTS AND THEREFORE, REJECTED AS SUCH . IN THE SAID FACTUAL BACKDROP, THE AO COMES TO THE CONCLUSION THAT THE MAIN PURPOSE OF TRANSFER OF THESE ASSETS WAS FOR REDUCTION OF A LIA BILITY OF INCOME TAX BY EXCESS DEPRECIATION WITH REFERENCE TO THE ENHANCED COST AND, THEREFORE EXPLANATION 3 TO SECTION 43(1) GETS ATTRACTED. ACCORDINGLY, THE AO HAS TAKEN THE WDV OF THE ASSETS AS PER EXPLANATION 3 OF SECTION 43(1) OF THE ACT FROM THE BOOK S 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, ACCORDING 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 THEREFORE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION FOR ONLY HALF O THE YEAR AND NOT FOR THE 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, D O NOT TALLY WITH THE CONSIDERATION STATED IN THE AGREEMENT DATED 27.9.2004. 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 DISALLO WANCE ACCORDINGLY. 9 . SECTION 43(1) READS AS UNDER: 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 7 ( 1 ) 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THERE OF, 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 DAY OF MARCH, 1967, [BUT BEFORE THE 1ST DAY OF MARC H, 1975,] AND IS USED OTHERWISE THAN IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS, 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 THOUSA ND RUPEES.] EXPLANATION 1. WHERE AN ASSET IS USED IN THE BUSINESS 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, TH E ACTUAL COST OF THE ASSET TO THE ASSESSEE SHALL BE THE ACTUAL COST TO THE ASSESSEE AS REDUCED BY THE AMOUNT OF ANY DEDUCTION ALLOWED UNDER CLAUSE ( IV ) OF 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 ASSESSEE BY WAY OF GIFT OR INHERITANCE, THE ACTUAL COST OF THE ASSET TO THE ASSESSEE SHALL BE THE ACTUAL COST TO THE PREVIOUS OWNER, AS REDUCED BY ( A ) THE AMOUNT OF DEPRECIATION ACTUALLY A LLOWED UNDER THIS ACT AND THE CORRESPONDING PROVISIONS OF THE INDIAN INCOME - TAX 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 IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 8 ( B ) THE AMOUNT OF DEPRECIATION THAT W OULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER 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 ACQUISITION BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PERSON FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND THE [ASSESSING] OFFICER IS SATISFIED THAT THE MAIN PURPOSE OF THE TRANSFER OF SUCH ASSETS, DIRECTLY 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 SUCH AN AMOUNT AS THE [ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE [JOINT COMMISSIONER], DETERMINE HAVING REGAR D TO ALL THE CIRCUMSTANCES 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 COST OF THE ASSETS AS REDUCED BY THAT PORTION OF THE COST WHICH MAY HAVE BEEN MET DIRE CTLY OR INDIRECTLY BY ANY OTHER PERSON. EXPLANATION 3 TO THE SAID SUB - SECTION STIPULATES THAT: - I) THE ASSETS WHICH ARE ACQUIRED BY THE ASSESSEE WERE USED BY ANY OTHER PERSON BEFORE THE DATE OF ACQUISITION; II) THE INCOME - TAX OFFICER ARRIVES AT OBJECTIVE SATISF ACTION THAT SUCH ASSETS WERE TRANSFERRED WITH THE MAIN PURPOSE OF REDUCING TAX LIABILITY BY CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COST. IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 9 III) THEN THE INCOME - TAX OFFICER IS EMPOWERED TO DETERMINE THE ACTUAL COST HAVING REGARD TO ALL THE CIRCUMSTANC ES 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 SUCH ASSETS DIRECTLY OR INDIRECTLY TO THE ASSESSEE WAS FOR THE REDUCTION OF A LIABILITY OF INCOME TAX BY CLAIMI NG DEPRECATION WITH REFERENCE TO AN ENHANCED COST. THEN ONLY, THE AO CAN INVOKE EXPLANATION 3 TO FIX THE ACTUAL COST. SO, THEREFORE, THE REQUIREMENT OF LAW IS THAT THE MAIN PURPOSE OF THE TRANSFER OF ASSETS WAS FOR THE REDUCTION OF A LIABILITY TO INCOME TAX WITHOUT SATISFYING THE SAME, THE AO CANNOT INVOKE EXPLANATION 3 TO SECTION 43(1). 12. HERE, IN THIS CASE, WE FIRSTLY NOTICE THAT THE AO S OBSERVATION THAT NEITHER IN THE AUDIT REPORT OR IN THE PAPERS FILED ALONGWITH THE RETURN THE ACQUISITION WAS NOT MENTIONED, IS NOT CORRECT. WE FIND THAT IN THE DIRECTOR S REPORT, IT HAS REPORTED THAT THE ASSESSEE HAD ACQUIRED BUSINESS OF DELTRON LIMITED AS A GOING CONCERN (PAPER BOOK PAGE 2). SIMILARLY, WE FIND THAT IN SCHEDULE T OF BALANCE SHEET BEING NOTES ON ACC OUNTS 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 T HE TRANSACTION 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 BUSINES S AND DOES NOT HAVE SUFFICIENT FINANCIAL RESOURCES TO RUN THE BUSINESS AS A PROFITABLE UNIT NOW AND IN FUTURE IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 10 AS IT NEEDS TO CONTINUOUSLY INVEST HEAVILY IN R & D AND IN DEVELOPING PROCESS CAPABILITIES 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 DESCRIBED IN ANNEXURE I TO THIS AGREEMENT MENTIONED THEREIN WITH EFFECT FROM 30 TH SEPTEMBER, 2004. 2. .. 3. THAT IN VIEW OF THE TRANSFER OF THE ENTR IES ELECTRONICS BUSINESS OF DELTRON LTD. AS GOING CONCERN TO CDIL AND IN ORDER TO MAINTAIN CONTINUITY OF BUSINESS WITH THE CUSTOMERS AFTER THE TRANSFER OF BUSINESS, CDIL SHALL BE ENTITLED TO USE THE NAME DELTRON IN ALL ITS FUTURE BUSINESS. 4. THAT LIABILIT IES OF DELTRON LTD. EXCEPT STATUTORY DUES, OUTSTANDING LIABILITIES, BONUS PAYABLE, MEDICAL BENEFITS PAYABLE, STALE CHEQUES, UNPAID SALARY, DIVIDEND, INTEREST PAYABLE, MONIES RECEIVED AGAINST WARRANTS, IN RESPECT OF THE SAID BUSINESS PRIOR TO THE TAKE OVER DATE, SHALL BE TAKEN OVER BY CDIL. 8. .. A) THE TRANSFER OF ALL THE PLANT & MACHINERY AND ALL 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 AGREEMEN T MAKES IT ABUNDANTLY 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 ACCOUNT OF LACK OF SUFFICIENT FINANCIAL IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 11 SOURCE TO RUN THE SAID BUSINESS AS A PROFITABLE UNIT BY THE PUBLIC LIMITED COMPANY. THIS PURPOSE AS STATED IN THE AGREEMENT HAS NOT BEEN FOUND TO BE REJECTED, COMMENTED OR DISPUTED BY ANY OF THE AUTHORITIES 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 DEVELOP PROCESS CAPABILITY TO KEEP PACE WITH THE ADVANCING TECHNOLOGY. NO DOUBT, THE GROUND OF COMMON MANAGEMENT AND COMMON OFFICE IS A RELEVANT CONSIDERATION BUT THE SAME IS NOT OF CONCLUSIVE NATURE. THE PRIME RE QUIREMENT UNDER EXPLANATION 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 CLAIMING DEPRECIATION AT AN ENHANCED COST. WE HAVE ALREADY STATED ABOVE THAT HER E 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 1.4.2004 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 POINTED OUT THAT DELTRON LTD. IS A PUBLIC LIMITED COMPANY AND HAD BEEN ALLOWED 100% DEDUCTION UNDER SECTION 35(1)(IV) /35(2) OF THE ACT AS EXPENDITURE AND AS SUCH, 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 SHEET 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 ASSETS 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 WDV AS ON 31.3.2004 (UNDER IT ACT WITHOUT TAKING VALUE AT WHICH TAKEN OVER BY ASSESSEE VALUE ADOPTED BY THE AO FOR INVOKING IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 12 31.3.2004 INTO CONSIDERATION 100% DEP. AS (R&D) EXPLANATION 3 TO SECTION 43(1) BUILDING 74,25,264 36,68,570 66,00,000 66,00,000 LEASEHOLD IMPROV EMENTS -------- 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 ELECTR ICAL 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 1,76,84,338 15. FROM THE AFORESAID TABULATION, WE FIND FORC E 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 TRANSFERRED TO TH E ASSESSEE COMPANY AT RS. 66,00,000/ - AND THUS, LIKEWISE, IT IS NOT A CASE WHERE PLANT AND MACHINERY OF RS. 59.94 LACS AS NOTED BY THE ASSESSING OFFICER HAS BEEN TRANSFERRED FOR CONSIDERATION OF RS. 89.66 LACS. ON THE CONTRARY, PLANT AND MACHINERY HAVING B OOK VALUE OF RS. 3,71,66,000/ - HAS BEEN TRANSFERRED FOR CONSIDERATION OF RS. 89,66,000/ - . THE ABOVE VALUE ARE SUPPORTED BY A REGISTERED VALUER S REPORT AND ARE NOT MERE ARBITRARY VALUATIONS ADOPTED BY THE ASSESSEE THE ASSESSING OFFICER VIS - - VIS REGISTERED VALUER S REPORT HAS HELD THAT BOTH THE COMPANIES WERE ENGAGED IN THE SAME KIND OF ELECTRONIC BUSINESS AND PLANT AND MACHINERY USED BY THEM WAS IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 13 UNIQUE AND THEY WERE NOT ORDINARILY 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 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 VALUER S REPORT. 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 WHEN THE TRANSFER IS NOT OF AN ASSET BUT OF A BUSINESS ON A GOING CONCERN BASIS. THE 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 NOT IN DISPUTE. ALL WHAT HAS BEEN DISPUTED BY THE ASSESSING OFFICER AND UPHELD BY 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 THE 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 VALUER S REPORT WHICH VALUATION 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 ASSETS STANDING UNDER THE COMPANIES ACT, THE VALUE AS ADOPTED CANNOT OTHERWISE BE SAID TO BE UNREASONABLE. 16. IN ARRIVING AT THE ABOVE CONCLUSION, WE FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF ASH WIN VANASPATI 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 IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 14 ORDER NOR IN THE TRIBUNAL S ORDER IS THERE ANY WHISPER THAT THE VALUATION REPORT BY THE REGISTERED VALUER IS INCORRECT IN ANY MANNER WHATSOEVER. ONCE THERE IS A REPORT BY THE REGISTERED VALUER IT IS ENCUMBENT UPON THE AUTHORITY 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 TECHNICAL EXPERT S OPINION CANNOT BE DISLODGED BY ANY AUTHORITY BY MERERLY IGNORING THE SAME. IN THE PRESENT CASE THAT IS WHAT HAS HAPPENED. NEITHER THE ASSESSING OFFICER NOR THE TRIBUNAL HAVE EVEN ATTEMPTED TO STATE TH AT THE VALUATION REPORT AND THE VALUES PUT ON THE ASSETS ARE INCORRECT IN ANY MANNER WHATSOEVER. THEY HAVE SIMPLY IGNORED THE VALUATION REPORT. IT WAS FURTHER HELD AS UNDER: THE ASSESSEE HAVING MADE A CLAIM FOR DEPRECIATION ON ENHANCED COST, WHICH IS TH E 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 SOME EVIDENCE ON RECORD. IT COULD NOT HAVE SUBSTITUTED ITS OPINION AND ADOPTED THE BOO K VALUE OR THE WRITTEN DOWN VALUE IN THE HANDS OF THE ASSESSEE - COMPANY. AS CAN BE SEEN FROM EXPLANATION 3 TO SECTION 43(1) OF THE ACT, THE INCOME - TAX OFFICER IS REQUIRED TO DETERMINE THE ACTUAL COST TO THE ASSESSEE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE AND IF IN HIS OPINION THE WRITTEN DOWN VALUE WAS THE ACTUAL COST, HE OUGHT TO HAVE SUPPORTED THE SAME BY PLACING SUFFICIENT EVIDENCE SO AS TO DISLODGE THE VALUATION REPORT OF THE REGISTERED VALUER. ON HIS HAVING FAILED TO DO SO, SEEN IF THE EARLI ER PORTION OF THE PROVISION, VIZ., THE CONDITION OF THE ASSETS HAVING BEEN USED BY ANOTHER PERSON BEFORE THE DATE OF ACQUISITION STANDS FULFILLED THE PROVISION CANNOT BE APPLIED. IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 15 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 CASE OF THE A.O. IS BASED ON EXPLANATION (3) TO SECTION 43(1) AS REPRODUCED ABOVE. AS PER THIS EXPLA NATION, WE ARE OF THE CONSIDERED OPINION THAT THE A.O. CAN DETERMINE THE ORIGINAL COST OF THE ASSETS FOR ALLOWING DEPRECIATION TO THE ASSESSEE ONLY IF HE IS SATISFIED THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSET, DIRECTLY OR INDIRECTLY TO THE ASSESSEE, WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EXTRA DEPRECIATION WITH REFERENCE TO AN ENHANCED COST. 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 E STABLISH THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSET WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING EXTRA DEPRECIATION ON ENHANCED COST. IN ORDER TO ESTABLISH THIS, IT HAS TO BE ESTABLISHED THAT APART FROM CLAIMING ADDITIONAL DEPRECATION ON E NHANCED COST, THERE IS NO OTHER MAIN PURPOSE FOR ACQUIRING THE ASSET IN QUESTION. IN THE PRESENT CASE, THE A.O. IS ONLY DISPUTING THE VALUATION OF INTANGIBLE ASSET I.E. THE TRADEMARK ACQUIRED BY THE ASSESSEE FROM RELATED PARTIES WITHOUT EVEN MAKING AN ALLE GATION THAT SUCH ACQUISITION OF ASSETS WAS NOT HAVING ANY MAIN PURPOSE EXCEPT CLAIMING EXTRA DEPRECIATION. 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 REASON 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, 1961. THE SECOND REASON IS THIS THAT EVEN AFTER INVOKING THIS EXP.(3) TO SECTION 43(1) RIGHTLY OR WRONGLY, THE A.O. HAS NOT WORKED OUT THE VALUE OF THE IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 16 ASSET IN QUESTION IN THE PROPER MANNER. HE HAS IGNORED THE 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 THE ROYALTY RATE OF PAST INSTEAD OF EXPECTE D ROYALTY RATE IN FUTURE. EVEN FROM THE PAST ROYALTY RATE, HE HAS REDUCED 50% INCOME ON THIS BASIS THAT THE GOODWILL WAS NOT TRANSFERRED AND SUB - LICENSED BY NCWL TO NL AND NCCL BUT HE HAS FORGOTTEN THAT THE INCOME OF THE ROYALTY IS NOT BEING AFFECTED ON TH IS COUNT AND IT IS NOT MATERIAL AS TO WHETHER THE SAME IS WITH GOODWILL OR WITHOUT GOODWILL. HENCE, WE HAVE SEEN THAT EVEN THE VALUATION DONE BY THE A.O. IS NOT PROPER AND 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 THE C ASE OF THE ASSESSEE COMPANY AS HIGHLIGHTED ABOVE, SUCH A FACTOR ALONE CANNOT BE MADE A BASIS TO INVOKE EXPLANATION 3 TO SECTION 43(1) OF THE ACT. EXPLANATION 3 TO SECTION 43(1) OF THE ACT IS NOT AN ABSOLUTE RULE. THE ASSESSING OFFICER IS EMPOWERED TO SUBST ITUTE THE VALUE. HOWEVER, SUCH A VALUATION CANNOT 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 TRANSFERRED TO THE APPELLANT AS PART OF TRANSFER OF ELE CTRONIC BUSINESS ON GOING CONCERN BASIS CANNOT BE SAID TO BE IN ANY MANNER WITH AN INTENT TO REDUCE THE TAX LIABILITY. CERTAINLY, THE EFFECT OF THE TRANSACTION WAS THAT THE IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 17 GAIN DECLARED BY M/S. DELTRON LTD. WAS SET OFF AGAINST THE LOSSES IN ITS COMPUTATIO N YET THAT FACT CANNOT UNDETERMINE THE GENUINENESS OF THE TRANSACTION AND IN ANY CASE EMPOWER THE ASSESSING OFFICER TO SUBSTITUTE THE VALUATION AS DETERMINED IN THE REGISTERED VALUER S REPORT WHICH HAS NOT BEEN FOUND TO BE INCORRECT BY ANY OTHER TECHNICAL VALUATION. HENCE, WE DO NOT SUBSCRIBE TO THE CONCLUSION OF THE AUTHORITIES BELOW. 19. THE ASSESSING OFFICER HAS REFERRED TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS POULOSE AND MATHEN (PVT.) LTD. 236 ITR 416. IN THE SAID CASE, THE ASSE SSEE WAS A PARTNER IN A PARTNERSHIP FIRM CONSISTING OF NINE PARTNERS. THE PARTNERSHIP FIRM WAS DISSOLVED ON FEBRUARY 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 ASSE SSEE COMPANY HAD TAKEN OVER THE ASSETS OF THE FIRM AFTER ITS DISSOLUTION AND, THE ASSETS 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 FACTS, THE HIGH COURT HEL D THAT THE EXPLANATION 3 TO SECTION 43(1) OF THE ACT CORRESPONDENTS TO SECTION 10(5)(A) AND 192 OF THE ACT. IT WAS NOTED THAT THE MAIN PURPOSE OF THE SAID PROVISION WAS THAT ASSESSING OFFICER HAD POWER TO DETERMINE THE ACTUAL COST IF THE REDUCTION OF LIABI LITY TO INCOME TAX BY CLAIMING DEPRECIATION. THE HON BLE COURT HELD THAT IN SUCH A CASE, SUBSTITUTION OF ACTUAL COST BY THE ASSESSING OFFICER WAS CORRECT AS THE PARTNERS OF THE FIRM HAD CONSTITUTED THEMSELVES INTO A PRIVATE LIMITED COMPANY. ALL THE SHAREHO LDERS OF THE COMPANY WERE THE PARTNERS OR THEREFORE, NOMINEES AND THE SHARES WERE HELD IN THE SAME PROPORTIONATE AS HELD BY THE PARTNERS. IT WAS ALSO HELD THAT VALUATION WAS ENHANCED ONLY FOR MUTUAL ADJUSTMENT OF RIGHTS BETWEEN THE PARTNERS OF THE FIRM. IT WAS THUS HELD THAT IT IS A CASE OF DEVICE WHICH ATTRACTS EXPLANATION 3 TO SECTION 43(1) OF THE ACT. THE FACTS ARE THUS TOTALLY DISTINGUISHABLE AS IN THE INSTANT CASE IT IS A TRANSFER OF PUBLIC LIMITED COMPANY TO IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 18 THE CLOSELY HELD COMPANY FOR THE PURPOSE WH ICH HAS NOT BEEN DISPUTED BY EITHER THE ASSESSING OFFICER OR THE CIT(A). MOREOVER, VALUATION HAVING REGARD TO THE BOOK VALUE OF THE ASSETS ALSO SHOWS THAT THE CLAIM IS NOT ARBITRARY OR UNREASONABLE OR IRRATIONAL, PARTICULARLY WHEN SUPPORTED BY REGISTERED V ALUER S REPORT FURNISHED BY THE ASSESSEE. 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 TRANSFER BY THE PUBLIC LIMITED COMPANY TO THE PRIVATE LIMITED COMPANY. IT WAS NOTICED THAT THE SHARES ALLOTTED IN THE SAME PROPORTIONATE TO THE SHAREHOLDERS AS THE 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 ACTUALLY PAID BY ONE PERSON TO ANOTHER PERSON. THUS THE ABOVE JUDGMENT HAS ALSO NO APPLICATION TO THE CASE OF THE 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 C ONVEYANCE DATED 3.4.1996 ALL THE CUMULATIVE LANDS AND OTHER ASSETS TOGETHER WITH MACHINERY BELONGING TO GUZDAR KAJORA COAL MINES LTD. FOR A CONSIDERATION OF RS. 6,00,000/ - . IN THE SAID CASE, THE ITO ON DIRECTIONS OF THE TRIBUNAL HAD CARRIED OUT VALUATION W HICH 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 CIRCUMSTANCES, IT WAS HELD THAT IF CIRCUMSTANCES EXIST SHOWING THAT A FI CTITIOUS PRICE 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 PURPOSES IT IS OPEN TO THE INCOME TAX AUTHORITIES TO REFUSE TO ACCEPT THE PRICE MENTIO NED IN THE DEED OR ALLEGED BY THE ASSESSEE AD TO ASCERTAIN WHAT WAS THE ACTUAL ORIGINAL WAS. IT WAS THUS HELD THAT IT WAS OPEN TO THE INCOME TAX AUTHORITIES TO DETERMINE AND TO THE ASSESSEE TO SHOW WHETHER THE GOODWILL OF THE BUSINESS IS OR IS NOT INCLUDED IN THE CONSIDERATION OR THE IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 19 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 ALLOCATION GIVEN IN THE DEED OF CONVEYANCE , IT WAS AND IS OPEN TO THE INCOME TAX AUTHORITIES TO DETERMINE THE VALUATION AS WELL AS THE ALLOCATION BETWEEN DEPRECIABLE AND NON - DEPRECIABLE ASSETS. THERE IS NO DISPUTE TO THE ABOVE CONCLUSION OF THE HON BLE APEX COURT. HOWEVER, ON THE SAID FACTS AS IS THE CASE OF THE ASSESSEE COMPANY, SUCH AN INTERFERENCE IS NOT WARRANTED AS THERE IS NOTHING ON RECORD TO SHOW THAT HAVING REGARD TO THE VALUE OF THE ASSETS HELD BY THE TRANSFER OR COMPANY, SUCH AMOUNT PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE OR IR RATIONAL. THE VALUER S REPORT HAS NOT BEEN COMMENTED UPON IN ANY MANNER BY THE AUTHORITIES BELOW EITHER BY LEADING EXPERT OPINION OR TO SHOW SUCH VALUATION WAS EXCESSIVE AND HAS BEEN DONE WITH ANINTENT TO REDUCE THE TAX LIABILITY. THE OTHERS JUDGMENTS AS R EFERRED BY THE ASSESSING OFFICER ARE ALSO DISTINGUISHABLE 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 OFFICER AND UPHELD BY THE CIT (A). 20. HAVING REGARD TO THE ABOVE, WE HOLD THAT ASSESSING 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 C OST AS INCURRED BY THE APPELLANT ON TRANSFER OF THE ELECTRONIC BUSINESS ON GOING CONCERN BASIS FROM M/S. DELTRON LTD. TO THE APPELLANT COMPANY. 10. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 16.10.2015 FOR THE ASSESSMENT YEARS 200 5 - 06 TO 2007 - 08 AND 2009 - 10, IT (TP) A NO . 5623 /DEL /201 2 CONTINENTAL DEVICE INDIA LTD. 20 THE CLAIM OF THE ASSESSEE IS ALLOWED AND THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION IS DELETED. 11. VIDE GROUND NO. 7, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CHARGING OF INTEREST U/S 234D OF T HE ACT. AS REGARDS TO THIS GROUND THE COMMON CONTENTION OF BOTH THE PARTIES WAS THAT IT IS CONSEQUENTIAL IN NATURE. WE ORDER ACCORDINGLY. 12 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ( ORDER PRON OUNCED IN THE C OURT ON 31 /12 /2015 ) SD/ - SD/ - (KULDIP SINGH ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 /12 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGIS TRAR