DCIT CEN CIR 22, MUMBAI V. IDFC, SSKI LTD ( PREVIOUSLY KNOWN AS M.S, SSKI CORPORATE FINANCE P. LTD), MUMBAI

ITA 744/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71054 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 12-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: MANISH V SHAH
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . , , ! ! ! ! '# $% '# $% '# $% '# $% , ,, , & & & & ' ' ' ' BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 706/MUM./2011 ( &) * !+* / ASSESSMENT YEAR : 200708 ) DY. COMMISSIONER OF INCOME TAX CIRCLE8(2), MUMBAI .. ,- / APPELLANT ) V/S KEC INTERNATIONAL LTD. 463, ANNIE BENSANT ROAD WORLI, MUMBAI 400 030 .... ./,- / RESPONDENT , . / PERMANENT ACCOUNT NUMBER AACCK5599H 1! 2 3 / REVENUE BY : MR. S.D. SRIVASTAVA &) *4# 2 3 / ASSESSEE BY : MR. MANISH V. SHAH )! 2 # / DATE OF HEARING 06.08.2013 $ 5+ 2 # / DATE OF ORDER 06.09.2013 $ $ $ $ / ORDER '# $% '# $% '# $% '# $% , ,, , & & & & 6 6 6 6 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E, CHALLENGING THE IMPUGNED ORDER DATED 29 TH OCTOBER 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS)-XVII, MUMBAI, FOR THE QUANTU M OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) FOR THE ASSESSMENT YEAR 200708, FOLLOWING GR OUNDS HAVE BEEN RAISED: KEC INTERNATIONAL LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE A.O. TO ALLOW DEPRECIATI ON OF RS. 53,00,82,230/- WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT IT IS A CASE OF SLUMP SALE AN D NOT A DEMERGER IN TERMS OF SECTION 2(19AA) OF THE I.T. ACT, 1961, EVEN THOUGH THE ASSESSEE ISSUED ITS ENTIRE SHARE TO KEC INFRASTRUCTURE LIMITED (IN THE FINANCIAL YEAR RELEVANT TO A.Y. 2006-07) WHICH IN TURN DISTRIBUTED THE ENTIRE SHARES TO THE SHARE HOLDER OF ERSTWHILE KEC INFRASTRUCTURE LTD IN THE RATIO OF 1:1. THUS, IN TERMS OF SECTION 2(19AA)(V), NOT ONLY 3/4TH BUT ALL THE SHAR E HOLDERS OF THE ERSTWHILE DE-MERGED COMPANY BECAME THE SHARE HOLDERS OF THE R ESULTING COMPANY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW DEPRECI ATION ON THE REVALUATION OF ASSETS AND ON BRAND WITHOUT APPRECIATING THE FACT T HAT SUCH DEPRECIATION IS NOT ALLOWABLE AS IT IS A CASE OF DE-MERGER AND NOT A SLUMP SALE. HENCE, NO ASSET BY WAY OF BRAND IS CREATED BY REVALUING THE O LD AND EXISTING ASSETS. 2. THE ASSESSING OFFICER, FOLLOWING THE ASSESSMENT ORD ER FOR THE ASSESSMENT YEAR 200607, DISALLOWED THE CLAIM OF DE PRECIATION ON THE GROUND THAT THE TRANSFER UNDER THE SCHEME OF ARRANG EMENT APPROVED BY THE COURT WAS BY WAY OF DEMERGER FALLING WITHIN THE DEF INITION GIVEN UNDER SECTION 2(19AA) OF THE ACT AND, ACCORDINGLY, HELD T HAT WRITTEN DOWN VALUE (WDV) OF THE TRANSFERRED ASSETS IN THE HANDS OF THE ASSESSEE WAS THE WDV OF THE SAID ASSETS IMMEDIATELY PRIOR TO DEMERGER IN THE HANDS OF THE TRANSFEROR. ACCORDINGLY, THE EXCESS DEPRECIATION OF ` 5,83,00,82,230, WAS MADE BY THE ASSESSING OFFICER ON THE SAME BASIS AS WAS MADE IN THE ASSESSMENT YEAR 200607 3. THE ASSESSEE, BEFORE THE LEARNED COMMISSIONER (APPE ALS), MADE ELABORATED SUBMISSIONS WHICH HAD BEEN NOTED BY THE LEARNED COMMISSIONER (APPEALS), IN THE FOLLOWING MANNER: 3.2 THE AUTHORISED REPRESENTATIVE SUBMITTED THAT D URING THE FINANCIAL YEAR 2005-06 (AY 2006-07), THE APPELLANT HAD ACQUIRED TH E POWER TRANSMISSION BUSINESS (PTB) ON A GOING CONCERN BASIS UNDER A COU RT APPROVED SCHEME OF ARRANGEMENT. AS PTB WAS ACQUIRED ON A GOING CONCERN BASIS FOR A LUMP CONSIDERATION, THE APPELLANT CLAIMED DEPRECIATION O N THE ACTUAL COST DETERMINED HAVING REGARD TO THE PRICE PAID BASED ON THE FAIR VALUE DETERMINED BY INDEPENDENT VALUES IN RESPECT OF ASSE TS INCLUDING THE BRAND ACQUIRED UNDER SUCH SCHEME. THE SCHEME DID NOT SATI SFY THE CONDITIONS LAID DOWN UNDER SECTION 2(19AA) OF THE ACT :AND, THEREFO RE, IT DID NOT CONSTITUTE A DEMERGER INASMUCH AS THE SHARES WERE ISSUED TO TH E TRANSFEROR COMPANY KEC INTERNATIONAL LTD. 3 AND NOT TO THE SHAREHOLDERS OF THE TRANSFEROR COMPA NY AS LAID DOWN BY SECTION 2(19AA) OF THE ACT. ALSO, THE ASSETS WERE NOT TRANS FERRED AT BOOK VALUES. SINCE, THE CONDITIONS OF A QUALIFYING DEMERGER AS S PECIFIED IN SECTION 2(19AA) OF THE ACT WERE NOT SATISFIED AND THE PTB BEING ACQ UIRED AS A GOING CONCERN FOR A LUMPSURN CONDITION, THE WDV OF THE TRANSFEROR COULD NOT BE TREATED AS THE ACTUAL COST IN [HE HANDS OF THE APPELLANT AND T HE ACTUAL COST OF THE ASSETS WAS APPROPRIATELY DETERMINED BY THE APPELLANT BY AL LOCATING THE PURCHASE CONSIDERATION PAID BY IT TO THE TRANSFEROR COMPANY OVER THE ASSETS SO ACQUIRED. FOR ASSESSMENT YEAR 2006-07, THE CIT(A), VIDE ORDER DT. 5.6.09 ALLOWED THE CLAIM OF DEPRECIATION IN RESPECT OF ALL ASSETS OTHER THAN DEPRECIATION ON BRAND WHICH WAS DISALLOWED ON THE G ROUND THAT BRAND NOT CONSTITUTE AN INTANGIBLE ASSET UNDER SECTION 32(1 )(II). ON FURTHER APPEAL THE HONBLE TRIBUNAL VIDE ITA NO. 4402/MUM/2009 DT. 4.6 .10 HELD THAT BRAND IS AN INTANGIBLE ASSET WITHIN THE MEANING OF SECTION 32(1)(II) OF THE ACT AND ALSO UPHELD THE DECISION OF THE CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION ON THE ACTUAL COST DETERMINED HAVING REGARD TO FAIR VA LUE OF THE ASSETS DETERMINED BY INDEPENDENT VALUERS. THE ISSUE IN THE PRESENT APPEAL WAS THUS COVERED BY THE ABOVE MENTIONED ORDER OF THE HONBLE ITAT IN FAVOUR OF THE APPELLANT. 4. ACCORDINGLY, THE LEARNED COMMISSIONER (APPEALS), FO LLOWING THE ORDER OF THE TRIBUNAL AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DEPRECIATION. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HELD THAT THE REVENUES CASE IS THAT IT IS A CASE OF DEMERGER AND NOT A CASE OF SLUMP SALE. THEREFORE, DEPRECIATION CANNOT BE ALLOWED ON ENHANC ED VALUE, BUT ON WDV OF THE TRANSFERRED ASSETS IN THE HANDS OF THE ASSESSEE . HE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AS HAVE BEEN INCORPORATED IN THE ASSESSMENT YEAR 200607. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE POINT IN ISSUE IS SQUARELY COVERED BY THE EARLIER Y EARS DECISION OF THE TRIBUNAL AND THE SAME SHOULD BE FOLLOWED AND THE DE PRECIATION SHOULD BE ALLOWED ON THE WDV OF THE ASSESSMENT YEAR 200607. HE FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 200809 ALSO, THE TRIBU NAL HAS FOLLOWED THE DECISION FOR THE ASSESSMENT YEAR 200607. 7. AFTER CAREFULLY CONSIDERING THE RIVAL CONTENTIONS A ND ON A PERUSAL OF THE RELEVANT FINDINGS OF THE TRIBUNAL AS WELL AS THE MA TERIAL PLACED ON RECORD, WE FIND THAT THE POINT IN ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL KEC INTERNATIONAL LTD. 4 FOR THE ASSESSMENT YEAR 200607 IN ITA NO.4966/MUM. /2009 AND 4420/ MUM./2009, ORDER DATED 4 TH JUNE 2010. THIS DECISION HAS ALSO BEEN FOLLOWED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 200809 BY T HE ORDER DATED 28 TH MARCH 2013 IN ITA NO.7456/MUM./2011. THUS, FOLLOWIN G THE EARLIER YEARS PRECEDENCE AND ALSO THAT ONCE THE DEPRECIATION HAS BEEN ALLOWED IN THE ASSESSMENT YEAR 200607, THEN IN THE ASSESSMENT YEA R 200708, THE SAME HAS TO BE ALLOWED ON THE WDV ON THE SAME ASSETS. CO NSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS TREATED AS DISMISSED. 8. 4 #7 1! 2 41 ) 1# 89 : 8. IN THE RESULT, REVENUES APPEAL IS TREATED AS DI SMISSED. $ 2 5+ ; <)7 6 TH SEPTEMBER 2013 2 = : ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER 2013 SD/- . .. . B. RAMAKOTAIAH ACCOUNTANT MEMBER SD/- '# '# '# '# $% $% $% $% & & & & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, <) <) <) <) DATED : $ 2 .&#'> ?>+# / COPY OF THE ORDER FORWARDED TO : (1) &) *4# / THE ASSESSEE; (2) 1! / THE REVENUE; (3) @ () / THE CIT(A); (4) @ / THE CIT, MUMBAI CITY CONCERNED; (5) >!C= .&#&) , , / THE DR, ITAT, MUMBAI; (6) =D* E / GUARD FILE. /># .&# / TRUE COPY $) / BY ORDER . 1. FG / PRADEEP J. CHOWDHURY !4H &)1 F! / SR. PRIVATE SECRETARY I / 8 1 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI