Appeal details
Counselvise Citation
[2015] 134 COUNSELVISE.COM (IT) 1159 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 3 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2015
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
18-08-2015
Assessment Year
2005-2006
Appeal Filed On
10-05-2010
Judgement Text
] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.712/PN/2010 ASSESSMENT YEAR : 2005-06 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE- 9, PUNE. . APPELLANT VS. JAYA HIND SCIAKY LTD., MUMBAI PUNE ROAD, AKURDI, PUNE 411 044. PAN : AABCJ0186A . RESPONDENT / DEPARTMENT BY : SHRI B. C. MALAKAR / APPELLANT BY : SHRI C. H. NANIWADEKAR / DATE OF HEARING : 18.08.2015 / DATE OF PRONOUNCEMENT: 31.08.2015 & / ORDER PER PRADIP KUMAR KEDIA, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-V, PUNE DATED 19.02.2010 RELATING TO ASSESSMENT YEAR 2005-0 6 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE APPEAL OF THE REVENUE WAS EARLIER DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 29 TH MARCH, 2011 DUE TO ABSENCE OF PROPER SERVICE OF NO TICE UPON THE ASSESSEE. THE REVENUE MOVED MISCELLANEOUS APPLICA TION IN MA NO.123/PN/2013 PURSUANT TO WHICH THE TRIBUNAL RECALLED ITS EARLIER ORDER FOR FRESH ADJUDICATION ON MERITS, HENCE THIS APPEAL. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE 2 ITA NO.712/PN/2010 LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.1,01,09,779/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON PLANT & MACHINERY PURCHASED FROM THE SISTER CONCERNS WHEN THE AO HAD CLEARLY ESTABLISHED THAT T HE SAID PURCHASE OF PLANT & MACHINERY WAS HIT BY THE PROVISIONS OF EXPLANATION 3 TO SEC 43(1) OF THE I.T. ACT 1961 ?' 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.13,23,750/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON TECHNICAL KNOW -HOW ACQUIRED FROM THE SISTER CONCERNS WHEN THE AO HAD CLEARLY ESTABLISHED THAT THE SAID ACQUISITION OF TECHNICAL KNOW- HOW WAS HIT BY THE PROVISIONS OF EX PLANATION 3 TO SEC 43(1) OF THE I. T. ACT 1961?' 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.43,86,417/- MADE BY THE AO, ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO ITS SISTER CONCERN VIZ. M/S KINETIC ENGG. LTD. FOR ACQUISITION OF TOOL ROOM ?' 4. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANC E OF RS.43,86,417/-, WHEN THE TRANSACTION IN QUESTION, FOR WHICH THE SAID PAYMENT HAS BEEN MADE, APPEARS TO BE A NON-GENUINE AND SHAM TRANSACTION?' 5. THE ORDER OF THE LD. CIT(A) MAY BE VACATED AND T HAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 4. THE GROUNDS OF APPEAL NO.1 & 2 RELATES TO QUESTI ON OF APPLICABILITY OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT ON THE GI VEN SET OF FACTS. THE RELEVANT FACTS CONCERNING THE ISSUE ARE AS FOLLOWS. 4.1 DURING THE RELEVANT YEAR, THE ASSESSEE HAS PURC HASED PLANT & MACHINERY FOR ITS TOOL ROOM DIVISION FROM SISTER CONCERNS, NAMELY , M/S KINETIC ENGINEERING LTD. (M/S KEL) AND M/S KINETIC MOTOR LTD. (M/S KML) FOR AN AGGREGATE CONSIDERATION OF RS.9,34,68,813/-. MOREOVER, THE ASSESSEE HAS ALSO ACQUIRED TECHNICAL KNOW-HOW FOR ITS AFORESAID TOOL ROOM DIVISION FROM M/S KEL F OR A CONSIDERATION OF RS.1,10,20,000/-. THE DETAILS OF PURCHASE OF PLANT & MACHINERY AND ACQUISITION OF TECHNICAL KNOW-HOW ARE AS UNDER :- SR.NO. NAME OF THE ENTITY NATURE OF TRANSACTION AMOUNT (RS .) 1 M/S KINETIC ENGG. LTD. PURCHASE OF CAPITAL GOODS 7,78,35,813/- 2 KINETIC MOTOR CO. LTD. PURCHASE OF CAPITAL GOODS 1,56,33,000/- 3 M/S KINETIC ENGG. LTD TECHNICAL KNOW-HOW FEES 1,1 0,20,000/- 3 ITA NO.712/PN/2010 4.2 IT IS AN ADMITTED FACT THAT ASSETS ACQUIRED ARE SECOND HAND AND HAS BEEN USED BY THE SUPPLIER BEFORE ITS SALE TO THE ASSESSE E. THE LD. ASSESSING OFFICER ALSO PROCEEDED ON THE BASIS THAT THE WRITTEN DOWN V ALUE (WDV) OF THE CAPITAL GOODS IN THE BOOKS OF THE SUPPLIER/TRANSFEROR IS NI L FOR TAX PURPOSES. 4.3 THE ASSESSING OFFICER QUESTIONED THE TRANSFER O F CAPITAL GOODS BY THE SISTER CONCERNS AFTER AVAILING THE FULL TAX BENEFITS BY WA Y OF DEPRECIATION ALLOWANCE AT SUBSTANTIAL CONSIDERATIONS AS NOTED ABOVE. HE OBSE RVED THAT IN THE INSTANT CASE THE PRIMARY MOTIVE OF TRANSFER/SALE OF CAPITAL GOOD S, ETC. BY THE SISTER CONCERNS TO THE ASSESSEE IS TO STRUCTURE THE TRANSACTION WITH A VIEW TO MINIMIZE THE TAX LIABILITY OF THE ENTIRE KINETIC GROUP AS A WHOLE. TO SUPPORT THESE CONTENTIONS, THE ASSESSING OFFICER OBSERVED THAT BOTH THE RELATED CO NCERNS, NAMELY, M/S KEL AND M/S KML ARE HAVING SUBSTANTIAL ACCUMULATED LOSSES. THEREFORE, THE TRANSACTIONS HAVE BEEN STRUCTURED IN A MANNER SO THAT TAXABLE PR OFITS OF THE ASSESSEE ARE REDUCED BY AVAILING DEPRECIATION ALLOWANCE AGAIN. ALSO, CONSIDERING THE HUGE LOSSES AVAILABLE TO THE AFORESAID TWO RELATED TRANS FEROR CONCERNS, NO TAX LIABILITY WILL ARISE IN THEIR HANDS, EVEN IF EXTRA PROFITS ARE SHO WN IN THE RELEVANT YEARS. IN THE LIGHT OF AFORESAID OBSERVATIONS, THE ASSESSING OFFI CER INVOKED THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT. THE ASS ESSING OFFICER OBSERVED THAT THE ASSETS PURCHASED FROM M/S KEL WERE THE ASSETS IN RE SPECT OF WHICH THE SELLER COMPANY HAD BEEN CLAIMING DEPRECIATION CONSEQUENT T O WHICH THE WDV IN THEIR HANDS HAD BEEN REDUCED TO RS.NIL. THE ASSESSING OF FICER CONCLUDED THAT IN VIEW OF THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT, THE WDV OF THE ASSETS PURCHASED BY THE ASSESSEE FROM M/S KEL AND ALSO FRO M M/S KML ARE ADOPTED AT RS.NIL. THEREFORE, THE ASSESSING OFFICER DENIED TH E CLAIM OF DEPRECIATION OF RS.1,01,09,779/- ON THE ASSETS PURCHASED FROM M/S K EL AND M/S KML. LIKEWISE, FOR THE SIMILAR REASONS, COST OF ACQUISITION OF TEC HNICAL KNOW-HOW ACQUIRED FROM M/S KEL WAS ALSO TREATED AT RS.NIL BY THE ASSESSING OFF ICER. ACCORDINGLY, THE 4 ITA NO.712/PN/2010 DEPRECIATION CLAIMED OF RS.13,23,750/- ON THE TECHN ICAL KNOW-HOW WAS ALSO DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT IN RESPONSE TO RAPIDLY EXPANDING AUTOMOTIVE MARKET AND ALSO CONSIDERING GL OBAL REQUIREMENTS, THE ASSESSEE DECIDED TO VENTURE INTO MANUFACTURE OF MOU LDS, DIES AND TOOLS AS A BACKWARD INTEGRATION TO ITS CAPITAL MACHINE BUILDIN G ACTIVITY AND TO POSITION ITSELF AS A TOTAL SOLUTION PROVIDER. IT WAS FURTHER SUBMITTE D BY THE ASSESSEE THAT GREENFIELD PROJECT WOULD HAVE TAKEN A MUCH LONGER TIME AND THE REFORE, IT WAS DECIDED THAT THE EXISTING READY FACILITIES OF M/S KEL BE PURCHASED B Y THE ASSESSEE. FURTHER, SINCE IT WAS A NEW LINE OF ACTIVITY, THE ASSESSEE PARALLELY ENTERED INTO A TECHNICAL KNOW-HOW AGREEMENT WHEREBY DRAWINGS & DESIGNS OF MOULDS & DI ES, TESTING PROCEDURES & QUALITY CONTROL SPECIFICATIONS WERE MADE AVAILABLE TO THE ASSESSEE TO EXECUTE THE ORDER IN HAND. IT WAS ALSO CONTENDED BY THE ASSESS EE THAT THE COMPANY HAS OBTAINED VALUATION REPORT FROM AN APPROVED VALUER A ND HAS ADOPTED THE PRICES AS PER THE SAID REPORT FOR THE PURPOSES OF AFORESAID T RANSACTIONS. THE ASSESSEE FURTHER CONTENDED THAT WHILE IN THE CASE OF M/S KEL, THE WD V WAS RS.47,58,848/- YET THE ASSESSING OFFICER HAS WRONGLY ADOPTED NIL VALUE WIT HOUT ASSIGNING ANY REASONS. THE CIT(A) AFTER APPRECIATION OF FACTS AND LAW OBSE RVED THAT EXPLANATION 3 TO SECTION 43(1) OF THE ACT CAN BE APPLIED ONLY IF THE ASSESSING OFFICER IS OF THE VIEW THAT THE FAIR MARKET VALUE OF THE ASSETS HAS BEEN I NFLATED TO CLAIM EXCESS DEPRECIATION. IN THE INSTANT CASE, WHERE THE FAIR MARKET VALUE HAS BEEN CERTIFIED BY THE REGISTERED VALUER AND THE ASSESSING OFFICER HAS NOT APPOINTED ITS OWN VALUER FOR VALUATION OF THE DISPUTED ASSETS, THE VALUATION REP ORT SUBMITTED BY THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED. THE CIT(A) CONCLUDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MECHANICALLY ADOPTING THE VALU E OF THE ASSETS AS NIL WHERE THE 5 ITA NO.712/PN/2010 MACHINERY AND KNOW-HOW SO ACQUIRED BY THE ASSESSEE HAS GENERATED SALES TO THE TUNE OF RS.132.93 CRORES AND THEREFORE MUST HAVE CO MMANDED SOME PRICE IN THE MARKET. HE ACCORDINGLY DELETED THE DISALLOWANCE OF DEPRECIATION MADE BY THE ASSESSING OFFICER ON THIS SCORE. 7. THE REVENUE IS IN APPEAL AGAINST THE AFORESAID D ELETION OF DISALLOWANCE OF DEPRECIATION AS PER GROUND NOS.1 & 2 OF ITS APPEAL. 8. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE F OR THE REVENUE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND CONTENDED TH AT THE TRANSACTIONS HAVE BEEN CARRIED OUT PRIMARILY WITH A VIEW TO SAVE ON THE TA X LIABILITY. THE SECOND HAND ASSETS HAVE BEEN PURCHASED WHERE THE FULL/SUBSTANTI AL TAX BENEFITS WERE ALREADY AVAILED BY THE SELLER COMPANIES WHO HAPPEN TO BE SI STER CONCERNS. THE ASSESSEE HAS ONCE AGAIN SOUGHT TO CLAIM DEPRECIATION ON THE IMPUGNED ASSETS. HE, THEREFORE, PLEADED FOR RESTORATION OF THE ORDER OF THE ASSESSING OFFICER. 9. PER CONTRA , THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E OBSERVED THAT THE OBSERVATIONS OF THE CIT(A) ARE CLEAR AND S ELF-EVIDENT. THE PARTIES TO THE TRANSACTIONS ARE WIDELY HELD COMPANIES LISTED ON TH E STOCK EXCHANGES AND ARE SUBJECTED TO STRICT CORPORATE GOVERNANCE. THE ACQU ISITION OF THE TOOL ROOM FACILITIES FROM THESE PARTIES WAS A STRICT BUSINESS DECISION A S A MEASURE OF BACKWARD INTEGRATION TO ITS EXISTING BUSINESS. THE TECHNICA L KNOW-HOW AGREEMENT WAS ENTERED TO SECURE DRAWINGS & DESIGNS OF MOULDS & DI ES AND OTHER TESTING PROCEDURES & QUALITY CONTROL SPECIFICATIONS TO FACI LITATE THE ASSESSEE TO EXECUTE THE ORDER. THE LD. AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE FURTHER OBSERVED THAT THE SALES OF THE TOOL ROOM DIVISION FOR THE FINANCI AL YEAR 2004-05 AMOUNTING TO RS.132.39 LAKHS WHICH INCREASED UPTO RS.540.58 LAKH S FOR THE FINANCIAL YEAR 2006-07, THE PROFITS DERIVED FROM WHICH HAS BEEN DU LY SUBJECTED TO TAX. THEREFORE, IT CANNOT BE THE CASE OF THE REVENUE THAT THE TRANS ACTION OF THE IMPUGNED 6 ITA NO.712/PN/2010 ACQUISITION OF CAPITAL GOODS AND KNOW-HOW ARE NON-E XISTENT AND SHAM. HE FINALLY CONTENDED THAT EXPLANATION 3 TO SECTION 43(1) OF TH E ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE AT ALL. HE OBSERVED THAT AFORESA ID EXPLANATION 3 IS TRIGGERED ONLY IN CASES WHERE TWO CONDITIONS EXISTS. FIRSTLY, THE MAIN PURPOSE OF TRANSFER OF SUCH ASSETS WAS REDUCTION OF TAX LIABILITY BY CLAIMING D EPRECIATION WITH REFERENCE TO ENHANCE COST. IN THE INSTANT CASE, THE MAIN PURPOS E IS CLEARLY DEMONSTRATED TO BE ON ACCOUNT OF COMMERCIALLY EXPEDIENCY I.E. BACKWARD INTEGRATION OF THE EXISTING PLAN, WHICH HAS RESULTED IN SUBSTANTIAL COMMERCIAL ADVANTAGE TO THE ASSESSEE. SECONDLY, THE EXPLANATION ONLY ENABLES THE ASSESSIN G OFFICER TO IGNORE THE EXCESS OF ACTUAL COST AS DETERMINED BY HIM AND DOES NOT EN TITLE HIM TO ADOPT THE VALUE OF THE ASSETS AT NIL AS DONE BY THE ASSESSING OFFICER IN THE INSTANT CASE. HE, THEREAFTER, CONTENDED THAT THE VALUATION FOR THE PU RPOSE OF ACQUISITION OF THE ASSETS IS SUPPORTED BY VALUATION REPORT, WHICH HAS NOT BEE N CONTRADICTED BY THE REVENUE. HE, THEREFORE, PLEADED THAT EXPLANATION 3 IS NOT AT TRACTED AT ALL AND THEREFORE NO INTERFERENCE WITH THE ORDER OF THE CIT(A) IS CALLED FOR. THE LD. AR RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF CHITRA PUBL ICITY COMPANY (P) LTD. VS. ACIT REPORTED IN (2009) 32 DTR 227 (TM) (COPY IN FILE) A ND UNIMED TECHNOLOGIES LTD. VS. DCIT REPORTED IN (2000) 73 ITD 150 (AHD) TO SUP PORT THE CASE OF THE ASSESSEE. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND THE ORDERS OF THE AUTHORITIES BELOW. THE ENTIRE DISPUTE REVOLVES ARO UND THE APPLICABILITY OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT IN THE FA CTS OF THE CASE. THE WDV OF THE ASSETS ACQUIRED FROM M/S KEL IS NIL WHILE THE WDV O F THE ASSETS ACQUIRED FROM M/S KML IN THE HAND OF THE TRANSFEROR WAS AT RS.47, 58,848/-. THE ASSESSEE ASSERTED THAT THE MAIN OBJECT OF ACQUISITION OF THE ASSETS AND TECHNICAL KNOW-HOW WAS TO PROMOTE THE BUSINESS BY WAY OF BACKWARD INTE GRATION OF THE EXISTING FACILITY, WHICH HAS RESULTED IN COMMERCIAL PROFITS. THESE FA CTS HAVE NOT BEEN DISPUTED BY THE REVENUE. 7 ITA NO.712/PN/2010 11. IN ORDER TO APPRECIATE THE EXPLANATION 3 TO SEC TION 43(1) OF THE ACT, THE RELEVANT CLAUSE IS REPRODUCED AS UNDER :- 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLE SS 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 AUTHORITY: XXXXXXX XXXXXXX EXPLANATION 3.WHERE, BEFORE THE DATE OF ACQUISITIO N BY THE ASSESSEE, THE ASSETS WERE AT ANY TIME USED BY ANY OTHER PERSON FOR THE P URPOSES 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 W ITH REFERENCE TO AN ENHANCED COST), THE ACTUAL COST TO THE ASSESSEE SHALL BE SUCH AN AM OUNT AS THE [ASSESSING] OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE [JOINT COMMI SSIONER], DETERMINE HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 12. FROM A BARE READING IT IS EVIDENT THAT THE IMPU GNED EXPLANATION HAS THREE INGREDIENTS : (I) THE ASSETS ACQUIRED SHOULD BE SEC OND HAND ASSET; (II) THE MAIN PURPOSE OF TRANSACTION SHOULD BE TO REDUCE THE TAX LIABILITY BY CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COSTS; AND, (III) THE AS SESSING OFFICER MAY DISPLACE THE ACTUAL COST OF THE ASSESSEE AND DETERMINE FOR HIMSE LF THE ADJUSTED ACTUAL COST IN THE EVENT OF SECOND EVENTUALITY. HENCE, THE ASSESS ING OFFICER IS ENTITLED TO DETERMINE THE ACTUAL COST OF THE ASSETS ACQUIRED AT ARM'S LENGTH VALUE OR REAL VALUE OR WORTH OF THE ASSETS NOTWITHSTANDING THE AMOUNT P AID BY THE ASSESSEE FOR THE ACQUISITION OF IMPUGNED ASSETS. NONETHELESS, THE A SSESSING OFFICER IS TO BE SATISFIED THAT MAIN PURPOSE OF THE TRANSFER OF SUCH ASSETS WAS THE REDUCTION OF LIABILITY TO INCOME TAX BY CLAIMING DEPRECIATION WI TH REFERENCE TO ENHANCED COST. THE BURDEN TO DETERMINE THE REPLACED OR ADJUSTED AC TUAL COST IN ACCORDANCE WITH LAW IS ON THE ASSESSING OFFICER AND NOT ON THE ASSE SSEE. THE ASSESSING OFFICER HAS TO SHOW THAT HE HAS GATHERED RELEVANT MATERIAL AND DETERMINE ACTUAL COST AFTER APPLICATION OF MIND. ONCE, IT IS ESTABLISHED THAT THE MAIN PURPOSE WAS TO CIRCUMVENT THE INCOME-TAX LIABILITY, THE ASSESSING OFFICER WILL BE ENTITLED TO 8 ITA NO.712/PN/2010 SUBSTITUTE THE PURCHASE PRICE ADOPTED BY THE ASSESS EE WITH THE ADJUSTED ACTUAL COST OR THE REAL COST REFERABLE TO SUCH ASSETS. THEREFO RE, IN TERMS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT, IF THE ASSESSING OFFICER HOLDS THAT THE PRIMARY OBJECT OF SUCH ACQUISITION IS REDUCTION OF TAX LIABILITY AND IS OF THE VIEW THAT THE FAIR MARKET VALUE OF THE ASSETS HAS BEEN INFLATED TO CLAIM DEPR ECIATION THEN HE CAN SUBSTITUTE THE FAIR MARKET VALUE AS PER COST ESTIMATED BY HIM WITH THE APPROVAL OF THE SUPERIOR AUTHORITY. 13. WE FIND THAT FIRSTLY, THE ASSESSING OFFICER COU LD NOT DISCHARGE ITS ONUS THAT THE MAIN OBJECTIVE OF THE TRANSFER OF ASSETS WAS RE DUCTION OF THE TAX LIABILITY. ON THE OTHER HAND, THE ASSESSEE HAS BEEN ABLE TO DEMONSTRA TE THAT THE OBJECTIVE OF SUCH ACQUISITION IN QUESTION WAS WITH A VIEW TO AUGMENT ITS BUSINESS CAPABILITIES BY WAY OF BACKWARD INTEGRATION OF EXISTING FACILITIES. TH E STAND OF THE ASSESSEE THAT THE IMPUGNED ASSETS AND TECHNICAL KNOW-HOW SO ACQUIRED WERE A COMMERCIAL AND OUTRIGHT BUSINESS DECISION FOR BACKWARD INTEGRATION OF THE EXISTING MANUFACTURING FACILITIES, WHICH HAS EXPLICITLY RESULTED IN COMMER CIAL GAINS REMAINS UNDISPUTED. SOME SUBSERVIENT AND INCIDENTAL TAX BENEFITS ARISIN G FROM SUCH TRANSACTIONS BY ITSELF IS NOT SUFFICIENT TO HOLD AGAINST AN ASSESSE E. THE PHRASEOLOGY OF THE EXPLANATION IS PLAIN AND SIMPLE. IT IS THE MAIN P URPOSE AND NOT SECONDARY PURPOSE OR SOME INCIDENTAL BENEFITS ARISING FROM SU CH TRANSACTION WHICH CAN TRIGGER EXPLANATION 3 TO S. 43(1). ONCE THE OVERWHELMING C OMMERCIAL ADVANTAGE FROM THE TRANSACTION IS DISPLAYED, WHICH IS DONE IN THE INST ANT CASE, THE OTHER CONSIDERATIONS FADE INTO INSIGNIFICANCE. THUS, WHILE THE ASSESSEE HAS CLEARLY DEMONSTRATED ITS BONA-FIDE, THE REVENUE COULD NOT CONTRADICT ANY AVE RMENT OF THE ASSESSEE. 14. SECONDLY, HAVING ARRIVED AT THE FINDING THAT TH E MAIN PURPOSE IS TAKEN ADVANTAGE FROM SUCH ACQUISITION, THE SECOND OBLIGAT ION CAST ON THE REVENUE IS TO DETERMINE THE FAIR VALUE OF THE ASSETS AND REPLACE IT WITH THE COST OF ACQUISITION OF THE ASSESSEE AND AS A SEQUEL TO IT, ALLOW DEPRECIAT ION ALLOWANCE ON THE ADJUSTED 9 ITA NO.712/PN/2010 ACTUAL COST. HENCE, AS PER THE SCHEME OF THE ACT, THE DEPRECIATION CAN NOT BE DISALLOWED IN TOTO BUT IS ALLOWABLE ON THE ACTUAL COST AS DETERMINED BY THE ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER H AS ADOPTED NIL VALUE OF THE COST OF ACQUISITION AND DENIED THE DEPRECIATION COM PLETELY ONLY ON THE PREMISE THAT DEPRECIATION HAS BEEN ALREADY AVAILED BY THE PREVIO US OWNER. THIS ACTION IS TOTALLY CONTRARY TO THE PLAIN LANGUAGE OF THE EXPLANATION A ND IS THUS VITIATED IN LAW. THERE IS NO MATERIAL IN POSSESSION OF THE ASSESSING OFFIC ER TO ENABLE HIM TO DISPLACE THE COST OF ACQUISITION DECLARED BY THE ASSESSEE. FURT HER, THE WDV OF ASSETS IN THE CASE OF M/S KEL WAS RS.47,58,848/-, WHICH WAS TAKEN AT NIL BY ASSESSING OFFICER. THERE IS NO RATIONALE FOR SUCH ACTION. THE ASSESSE E ON THE OTHER HAND HAS SUPPORTED THE VALUATION OF THE ASSETS BY THE VALUAT ION REPORT OF THE REGISTERED VALUER AND IN ABSENCE OF ONUS BEING DISCHARGED BY T HE ASSESSING OFFICER, THE APPLICABILITY OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT BY THE ASSESSING OFFICER IS NOT JUSTIFIABLE IN THE FACTS OF THE CASE. THE ASSE SSEE IS ENTITLED TO CLAIM OF DEPRECIATION ON THE ACQUISITION OF ASSETS AND TECHN ICAL KNOW-HOW, WE UPHOLD THE ORDER OF THE CIT(A). 15. IN THE RESULT, THE GROUND NOS.1 AND 2 OF THE RE VENUES APPEAL ARE DISMISSED. 16. GROUNDS OF APPEAL NOS.3 AND 4 RELATES TO DISALL OWANCE OF RS.43,86,417/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO ITS SISTER CONCERN, NAMELY, M/S KINETIC ENGINEERING LTD . (M/S KEL) FOR EXPENSES CONCERNING TOOL ROOM ACQUIRED. 17. THE RELEVANT FACTS CONCERNING THE ISSUE ARE THA T THE ASSESSEE BY WAY OF REVISED RETURN, INTER-ALIA , CLAIMED EXPENDITURE OF RS.43,86,417/- ON THE BASI S OF DEBIT NOTES RAISED BY M/S KEL AFTER FINALIZATION OF ACCOUNTS FOR THE RELEVANT YEAR. THE CLAIM OF EXPENDITURE WAS MADE BY THE ASSESSEE O N THE GROUND THAT THE 10 ITA NO.712/PN/2010 EXPENDITURE FLOWS FROM THE ACQUISITION OF ITS TOOL ROOM DIVISION FROM M/S KEL. IT IS THE CASE OF THE ASSESSEE THAT AFTER THE PURCHASE OF TOOL ROOM DIVISION OF M/S KEL, PRODUCTION AND SALES WERE EFFECTED DURING THE RELEV ANT PREVIOUS YEAR AS A GOING CONCERN. THE EXPENSES IN QUESTION ARE IN THE NATUR E OF SALARIES OF THE TOOL ROOM EMPLOYEES AND OTHER RELEVANT EXPENSES. THESE EXPEN SES PERTAINED TO THE PERIOD OF JANUARY TO MARCH 2005 I.E. AFTER THE TOOL ROOM W AS ACQUIRED BY THE ASSESSEE. SINCE THE EXPENSES WERE INITIALLY BOOKED IN THE BOO KS OF M/S KEL, THE SAME WAS TRANSFERRED TO THE ASSESSEE BY RAISING DEBIT NOTES FOR RE-IMBURSEMENT OF SUCH EXPENSES. 18. IN THE COURSE OF HEARING, THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE SUBMITTED THAT IT IS NOT CLEAR AS TO WHY TH E EXPENSES WERE NOT CLAIMED IN THE ORIGINAL RETURN AND CLAIMED ONLY BY WAY OF REVI SED RETURN. IT IS FURTHER NOT CLEAR WHETHER THESE DEBIT NOTES WERE AVAILABLE BEFORE THE ASSESSING OFFICER FOR NECESSARY ENQUIRY OR NOT. 19. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE DEBIT NOTES ARE DATED 30 TH SEPTEMBER, 2005 I.E. AFTER THE FINALIZATION OF ACC OUNT PERTAINING TO THE RELEVANT ASSESSMENT YEAR AND THEREFORE THE C LAIM HAS BEEN MADE BY WAY OF FILING THE REVISED RETURN TO TAKE COGNIZANCE OF THE LEGITIMATE EXPENSES INCURRED BY M/S KEL ON BEHALF OF THE ASSESSEE. 20. ON CONSIDERATION OF THE FACTS IN TOTALITY, WE R EMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE CLAIM OF ASSESS EE AFTER AFFORDING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ISSUE IS ACCORDINGLY SET-ASIDE TO THE ASSESSING OFFICER FOR RE-CONSIDERATION IN ACCORDANC E WITH FACTS AND LAW. 21. IN THE RESULT, THE GROUND OF APPEAL NOS.3 AND 4 OF THE REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 11 ITA NO.712/PN/2010 22. RESULTANTLY, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON THIS 31 ST DAY OF AUGUST, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 31 ST AUGUST, 2015. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $%& # '( / SR. PRIVATE SECRETARY ) '*, / ITAT, PUNE
Mehul