DCIT, Tiruppur V. S.V.P.B.Spinners Pvt Ltd., Tiruppur

ITA 96/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4480 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 22-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 19-01-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: A DHANJAYAN
• Keywords: Depreciation; Question of law; Fair market value; Wrong claim; Corroborative evidences; Valuation report; Onus to prove; Unabsorbed depreciation
• Section: 143(3); 32

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 96 /MDS/201 6 / ASSESSMENT YEAR :20 1 1 - 1 2 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2 , 121, SIXTY FEET RO A D, TIRUPUR. VS. M/S. S.V.P.B. SPINNERS PVT. LTD., NO. 54/2, JOTHI NAGAR, VENKATESA MILL POST, UDUMALPET, TIRUPUR 642 128 . [PAN: AA C CS7190J ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SHIVA SRINIVAS , J CIT / RESPONDENT BY : SHRI A. DHANJAYAN , C.A. / D ATE OF HEARING : 2 2 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 16 . 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APP EALS) 3 , C OIMBATORE DATED 2 8 . 1 0 .201 5 RELEVANT TO THE ASSESSMENT YEAR 20 11 - 1 2 . THE REVENUE HAS RAISED TWO GROUNDS VIZ., (I) THE L D. CIT(A) HAS ERRED IN ALLOWING DEDUCTION UNDER SECTION 80 - IA OF THE INCOME TAX ACT , 1961 [ ACT IN SHORT] AND (II) THE LD. CIT( A) HAS ERRED IN ALLOWING DEPRECIATION CLAIMED UNDER SECTION 32 OF THE ACT . I.T.A. NO . 96 /M/ 16 2 2. THE ASSESSEE IS A COMPANY , ENGAGED IN THE BUSINESS OF MANUFACTURE OF COTTON YARN AND FILED ITS RETURN OF INCOME ON 3 1 . 0 8 .201 1 ADMITTING ITS INCOME OF .1, 26,450 / - . THE CASE WAS TAKEN FOR SCRUTINY THROUGH CASS AND ASSESSMENT U NDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 28 . 03 .201 4 , WHEREIN , THE A SSESSING O FFICER MADE VARIOUS DISALLOWANCES INCLUDING DISALLOW ANCE OF DEDUCTION UNDER SECTION 80 - IA OF THE ACT ON WIND MILL . 3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION UNDER SECTION 80 - IA OF THE ACT RELYING UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT REPORTED IN 231 CTR (MAD) 368 [ 2010]. HOWEVER THE A SSESSING O FFICER OPINED THAT SINCE THE REVENUE IS IN APPEAL AND THE MATTER IS PENDING BEFORE THE HON. APEX COURT, HE MADE DISALLOW ANCE AT . 23,49,034 / - UNDER SECTION 80 - IA OF THE ACT. 4 . ON APPEAL BY THE ASSESSEE, L D.CIT (A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT ( SUPRA ), WHEREIN , IT WAS HELD THAT: - I) EACH ELIGIBLE UNIT OF THE INDUSTRIAL UNDERTAKING HAS TO BE CONSIDERED AS IF SUCH ELIGIBLE BUSINESS WHERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT I.T.A. NO . 96 /M/ 16 3 YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UPTO THE PERIOD PRESCRIBED UNDER THE ACT FOR THE BENEFIT OF SECTION 80IA OF THE ACT. II) THAT THE INITIAL ASSESSMENT YEAR REFERRED TO SECTION 80 - IA(5) OF THE ACT WOULD MEAN THE YEAR IN WHICH THE ASSESSEE OPTS IN S ELECTING THE YEAR OF CLAIMING RELIEF UNDER SECTION 80 - IA OF THE ACT. III) THAT THE UNABSORBED DEPRECIATION AND CARRY FORWARD LOSSES OF THE EARLIER YEARS WHICH HAD ALREADY BEEN SET OFF AGAINST THE OTHER INCOME CANNOT BE NOTIONALLY CARRY FORWARD AND TAKE N INTO CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80 - IA OF THE ACT. 5 . BEFORE US, BY RELYING ON THE ASSESSMENT ORDER THE L D. DR SUBMITTED THAT THE ASSESSING OFFICER HAD ARRIVED AT THIS DECISION OUT OF ABUNDANT CAUTION, BECAU SE THE REVENUE HAS CARRIED THE MATTER BEFORE THE HON BLE APEX COURT AND THE MATTER WAS PENDING. THE L D. A.R. ON THE OTHER HAND, RELIED ON THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. ( SUPRA ) A N D PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE UPHELD. 6 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE IT APPEARS THAT THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE REVENUE WAS ON APPEAL AGAINST THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE VELAYUDHASWAMY SPINNING MILLS P. LTD (SUPRA) BEFORE THE HON BLE APEX COURT, HE NEED NOT FOLLOW THAT DECISION. HE DID NOT REALIZE THAT MERE FILING OF THE SLP BEFORE THE I.T.A. NO . 96 /M/ 16 4 APEX CO URT IS NOT A VALID GROUND FOR NOT FOLLOWING THE JUDGMENT OF THE HON BLE MADRAS HIGH COURT. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT THE JUDGMENT OF THE HON BLE MADRAS HIGH COURT IN THE CASE VELAYUDHA SWAMY SPINNING MILLS P. LTD (SU P R A) IS STAYED BY THE HON BLE APEX COURT. IT IS PERTINENT TO MENTION THAT IN THE ABSENCE OF ANY STAY GRANTED BY THE HON BLE APEX COURT AGAINST THE OPERATION OF THE JUDGMENT OF THE HON BLE MADRAS HIGH COURT, ALL THE LOWER JUDICIARIES AS WELL AS QUASI JUDICIAL AUTHORITIES ARE BOUND TO FOLLOW THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT. SINCE THE L D. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE DECISION OF THE JURISDICTIONAL HIGH COURT CITED SUPRA AND HELD THE ISSUES IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND IT NEC ESSARY TO INTERFERE WITH THE ORDERS OF THE L D.CIT(A). THEREFORE WE HEREBY CONFIRM THE ORDERS OF THE L D. CIT (A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE . 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO DELETIO N OF ADDITION MADE ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS PURCHASED A SECOND HAND WINDMILL FROM ONE SHRI K.N. MUTHIAH AT THE COST OF .2,58,92,000/ - BY AVAILING TERM LOAN FROM INDIAN OVERSEAS BANK FOR .1,25,00,000/ - WITH A MARGIN OF 50%. AGAINST THIS WINDMILL, THE ASSESSEE HAS CLAIMED DEPRECIATION OF .2,07,13,600/ - AS PE R THE PROVISIONS OF SECTION 43(I)(C) OF THE ACT AS THIS WINDMILL FORMS PART OF THE BLOCK OF ASSETS. HOWEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE CLAIM I.T.A. NO . 96 /M/ 16 5 OF THE COST OF THE WINDMILL WAS EXCESSIVE AND IN THE PLACE OF ACTUAL COST PAID BY THE ASSESSEE, ADOPTED THE WDV OF THE ASSET IN THE HANDS OF SHRI K.N. MUTHIAH, TH E SELLER AS ON 01.04.2010 AT .12,128/ - TREATED IT TO BE THE ACTUAL COST IN THE HANDS OF THE ASSESSEE AND ON WHICH THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION @ 80% I.E., .9,702/ - . THUS, THE CLAIM OF THE ASSESSEE OF DEPRECIATION AT .2,07,13,600/ - HAS BEEN RESTRICTED TO .9,702/ - UNDER SECTION 43(6) OF THE ACT. 8. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: 5.1.4 MOREOVER, HE ASSESSEE S CLAIM THAT THE PRIMARY IN TENTION OF PURCHASE OF WINDMILL IN A YEAR WHEN THERE WAS AN ACUTE SHORTAGE OF POWER IN THE STATE AND NOT REDUCTION OF TAX LIABILITY HAS CONSIDERABLE FORCE. TO PROVE THAT PRIMARY INTENTION IS REDUCTION OF TAX LIABILITY, THERE HAS TO BE CORROBORATIVE CIRCUMS TANTIAL EVIDENCE WHICH DOES NOT EMERGE FROM THE REASONS FOR DISALLOWANCE IN THE ASSESSMENT ORDER. IN VIEW OF THE REASONS STATED ABOVE, THERE IS NO BASIS FOR INVOKING EXPLANATION 3 TO SUB SECTION (1) OF SECTION 43 FOR REDUCING THE ACTUAL COST TO THE WDV OF THE PREVIOUS OWNER WHICH CANNOT BE STATED TO BE THE PRICE WHICH THE ASSET WILL FETCH IN THE OPEN MARKET. ON THE OTHER HAND THE CLAIM IS SUPPORTED BY THE EXPERT OPINION OF THE REGISTERED VALUER. THE ADDITION MADE BY RESTRICTING THE CLAIM OF DEPRECIATION IS NOT SUSTAINABLE AND IS DELETED. THE TRANSACTION IS NOT MADE WITH A RELATED PARTY AND NO CONNECTION COULD BE BROUGHT OUT WITH EVIDENCE. 9. ON BEING AGGRIEVED, THE REVENUE IS APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONCLUDING THAT THERE WAS NO BASIS RELIED UPON BY THE ASSESSING OFFICER WHILE INVOKING EXPLANATION 3 TO SUBSECTION (1) OF SECTION 43 OF THE ACT IN SPITE OF THE FACT I.T.A. NO . 96 /M/ 16 6 THAT THE ASSESSING OFFICER HAS BROUGHT OUT CLEARLY THE FACTS AND CIRCUMST ANCES THAT REQUIRES TO INVOKE EXPLANATION 3 TO SUBSECTION (1) OF SECTION 43 OF THE ACT AND DISALLOWED THE WRONG CLAIM OF DEPRECIATION AND PLEADED THAT THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE SHOULD BE REVERSED. 10. ON THE OTHER HAND, THE LD. CO UNSEL FOR THE ASSESSEE HAS STRONGLY SUPPORTED THE ORDERS OF THE LD. CIT(A) ON THIS ISSUE AND RELIED ON THE DECISION IN THE CASE OF NAVLAKHA TRANSLINES V. ITO [2013] 58 SOT 55 (PUNE). 11. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECOR D AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF COTTON YARN. THE FINANCIAL YEAR 2010 - 11 WAS WORST AFFECTED FOR WANT OF POWER AND MOST OF THE INDUSTRIES WERE AFFECTED FOR NON AVAILABILITY OF POWE R. THIS HAS NECESSITATED THE COMPANY TO LOOK FOR ALTERNATIVE POWER AT THE EARLIEST POINT OF TIME. THE PRICE FOR NEW WINDMILLS HAVE GONE UP AND WITH THE FINANCIAL SITUATION, THE COMPANY COULD NOT AFFOR D TO EITHER PURCHASE NEW ONE WITH ITS OWN FUNDS NOR IT G O BURDEN ITSELF WITH NEW TERM LOAN FOR THE SAME. HENCE, THE ASSESSEE HAS DECIDED TO PURCHASE SECOND HAND WIND MILL AT A COMPETITIVE PRICE IN THE OPEN MARKET WITH THE ENQUIRY MADE IN VARIOUS PLACES AND WITH KNOWN PERSONS WHO ARE IN THIS FIELD. THUS, THE ASS ESSEE PURCHASED THE SECOND HAND WIND MILL AT .2,58,92,000/ - AND PRODUCED VALUATION REPORT OF THE CHARTERED ENGINEER & I.T.A. NO . 96 /M/ 16 7 REGISTERED VALUER EVALUATING THE PRESENT MARKET VALUE. AGAINST THE ACTUAL COST OF THE WINDMILL, THE ASSESSEE HAS CLAIMED ELIGIBLE DEPRECIATION AT .2,07,13,600/ - . 12. FOR INVOKING EXPLANATION 3 TO SUB SECTION (1) OF SECTION 43 OF THE ACT, THE ASSESSING OFFICER HAS OBSERVED THAT IN THE CASE OF WINDMILL, UNLIKE THE PLANT AND MACHINERY USED IN REGULAR COURSE OF BUSINESS, THE FREQUENCY OF SALE OR TRANSFER OF AN ASSET WITHIN THE SPAN OF LIFE TIME OF THE ASSET IS HIGH. THIS IS MAINLY BECAU S E OF AN ACCELERATED DEPRECIATION @ 80% AVAILABLE FOR WINDMILL IN A YEAR AND THE ENTIRE COST OF PURCHASE IS CLAIMED AS DEPRECIATION WITHIN 3 TO 4 FINANCIAL YEARS FROM THE YEAR OF PURCHASE. THEREAFTER, TH E ASSET WAS SOLD AT SOME IRRATIONAL AND UNREASONABLE SALE VALUE BY THE PERSONS AFTER AVAILING FULL DEPRECIATION. THE ABOVE GENERAL REASON ASSIGNED FOR INVOKING EXPLANATION 3 TO SUB SECTION (1) OF SECTION 43 OF THE ACT CANNOT BE HELD AS VALID REASON, WHICH IS CONTRARY TO INTENTION OF LEGISLATION ALLOWING DEPRECIATION @ 80% TO THE WINDMILL. THE ASSESSING OFFICER HAS NOT DISPUTED WITH REGARD TO THE SHORTAGE OF ELECTRIC POWER DURING THE FINANCIAL YEAR 2010 - 11. TO RUN THE BUSINESS OF MANUFACTURE OF COTTON YARN, UNINTERRUPTED POWER SUPPLY IS VERY MUCH ESSENTIAL. THE SUPPLIER OF SECOND HAND WIND MILL TO THE ASSESSEE IS NOT IN DISPUTE SINCE THE SELLER HAS FURNISHED HIS PAN, ETC. THE ASSESSING OFFICER HAS DETERMINED THE WDV AVAILABLE IN THE HANDS OF THE SELLER AT .1 2,128/ - . IT IS BEYOND IMAGINATION THAT AT THE COST OF .12,128/ - I.T.A. NO . 96 /M/ 16 8 ANYBODY CAN GET SECOND HAND WINDMILL AND IF IT IS SO, THERE WOULD NOT BE ELECTRIC POWER CUT IN THE S TATE OF TAMIL NADU AND NO INDUSTRY WOULD HAVE AFFECTED DUE TO ACUTE POWER CUT IN THAT PARTI CULAR FINANCIAL YEAR OR IN GENERAL. THE INTENTION OF LEGISLATION BEHIND TO OFFER 80% DEPRECIATION IS ONLY TO ENCOURAGE ELECTRIC POWER GENERATION THROUGH WINDMILL RATHER THAN ANY OTHER MEANS. IN THIS CASE, THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF C OTTON YARN AND UNINTERRUPTED POWER SUPPLY IS VERY MUCH ESSENTIAL, OTHERWISE, THE ASSESSEE NEED NOT GO FOR ADDITIONAL BURDEN OF TERM LOAN FOR ACQUIRING THE WINDMILL. 13. IN THE INSTANT CASE, ONCE THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS PURCHASED THE SECOND HAND WINDMILL AT A HIGHER COST, THEN THE BURDEN TO PROVE THE FAIR MARKET VALUE IS ON THE ASSESSING OFFICER. IN THIS CASE, ESTIMATION OF FAIR MARKET VALUE BY THE CHARTERED ENGINEER AND REGISTERED VALUER IS VERY MUCH AVAILABLE BEFOR E THE ASSESSING OFFICER. MOREOVER, THE AUTHORITIES BELOW HAVE NOT MADE ANY EXERCISE TO DETERMINE THE FAIR MARKET VALUE OF THE WINDMILL AND THEY HAVE SIMPLY ADOPTED THE WDV OF THE WINDMILL IN THE HANDS OF SHRI K.N. MUTHAIAH AS THE COST OF THE WINDMILL FOR T HE PURPOSE OF CALCULATING DEPRECIATION. WE ARE OF THE CONSIDERED OPINION THAT THE EXPLANATION 3 TO SECTION 43(1) OF THE ACT IS APPLICABLE IF THE ASSESSEE CLAIMS ENHANCED COT AS THE ACTUAL COST AND THE ASSESSING OFFICER IS ABLE TO SHOW THAT THE COST CLAIMED BY THE ASSESSEE IS MORE THAN THE I.T.A. NO . 96 /M/ 16 9 MARKET VALUE OF THE ASSET. THUS, THE ASSESSING OFFICER HAS NO REASON TO INVOKE THE EXPLANATION 3 TO SECTION 43(1) OF THE ACT. 14. WITH REGARD TO ADOPTION OF WDV AS FAIR MARKET OF AN ASSET IS NOT ACCEPTABLE . MECHANISM TO TAKE WDV AS PROVIDED IN EXPN.2 TO S. 43(6) (C) IS NOT AVAILABLE IN EXPL A N ATION 3 TO S ECTION 43(1) OF THE ACT . FURTHER, ASSETS WHOSE ACTUAL COST IS TO BE DETERMINED UNDER EXPL ANATION 3 ARE SECOND HAND AND IT IS ALWAYS DIFFICULT TO FIND ACTUAL COST OR VALUE OF SUCH ASSETS AS COMPARED TO NEW ASSETS. IN THE CASE OF TRANSFER OF AN ASSET BETWEEN TWO UNCONNECTED 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 OF DEPRECIATION. THERE IS NO WAY TO IGNORE IT AND IT IS NOT POSSIBLE TO RECORD MERELY THAT THE MAIN PURPOSE OF TRANSACTION IS THE REDUCTION OF INCOME - TAX LIA BILITY. SUCH ALP OR MARKET VALUE CANNOT HAVE A DIFFERENT MEANING IN CASE OF A TRANSACTION BETWEEN CONNECTED AND RELATED PARTIES IF FIXED BONAFIDELY AS PER MARKET CONDITIONS. THERE IS NO PROHIBITION OR CONNECTED PARTIES TO CARRY ARMS' LENGTH TRANSACTIONS WH ERE REAL VALUE OF THEM TRANSFERRED IS PAID. LAW FROWNS ON FRAUDULENT TRANSACTION CARRIED TO HOODWINK THE REVENUE. HAVING HELD THAT THE ASSESSEE HAS SHOWN ENHANCED COST OF ASSETS, THE A SSESSING OFFICER UNDER EXPL ANATION 3 TO S ECTION 43(1) OF THE ACT HAS TO DETERMINE THE 'ACTUAL COST' TO ASSESSEE WHICH CAN ONLY MEAN ARM'S LENGTH VALUE OR REAL I.T.A. NO . 96 /M/ 16 10 VALUE OR WORTH OF ASSETS TRANSFERRED. 15. UNDER SIMILAR FACTS AND CIRCUMSTANCES, BY FOLLOWING VARIOUS CASE LAW, THE PUNE BENCHES OF THE TRIBUNAL IN THE CASE OF NAVLAKH A TRANSLINES V. ITO(SUPRA) HAS OBSERVED AND HELD AS UNDER: 16. PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) AUTHORISES THE AO TO ADOPT ACTUAL COST FOR THE PURPOSES OF DEPRECIATION DIFFERENTLY FROM WHAT IS SHOWN AS THE COST OF THE ASSESSEE. IT CONFERS THE AUTHORITY TO THE AO TO ESTIMATE THE VALUE OF ANY USED ASSET, IF THE AO IS SATISFIED THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSETS DIRECTLY OR INDIRECTLY TO THE ASSESSEE IS PROMOTED BY THE OBJECT OF C LAIMING HIGHER DEPRECIATION ON SUCH ENHANCED COST. IN THE INSTANT CASE, ALTHOUGH THE WDV OF THE WIND MILLS IN THE BOOKS OF SNOWCEM INDIA LTD. HAVE BEEN SHOWN AT RS.26,50,000/ - AS ON 31 - 03 - 2003 WE FIND THE ASSESSEE HAD ARGUED BEFORE THE LOWER AUTHORITIES TH AT SNOWCEM INDIA LTD. HAD RETURNED THE WIND MILLS TO VESTAS RRB INDIA LTD. AT A COST OF RS.10,23,50,575 BEING THE AMOUNT OUTSTANDING AS ON 31 - 08 - 2003 AND HAS OFFERED SHORT TERM CAPITAL GAIN ON THE DIFFERENCE BETWEEN SALE PRICE AND THE WDV. THIS FACT HAS NO T BEEN DISPUTED BY THE REVENUE. NO DOUBT SNOWCEM INDIA LTD. HAD NOT PAID ANY TAX BECAUSE OF HUGE LOSSES IN ITS BUSINESS, HOWEVER, NON PAYMENT OF TAX DUE TO SET - OFF OF THE INCOME AGAINST BUSINESS LOSS BY SNOWCEM INDIA LTD. IN OUR OPINION CANNOT BE THE SOLE GROUND FOR REFUSING THE DEPRECIATION IN THE HANDS OF THE ASSESSEE ON THE COST OF THE WIND MILLS PURCHASED FROM VESTAS RRB INDIA LTD. AND FOR WHICH PAYMENTS HAVE BEEN MADE BY CHEQUE. THE SUBMISSION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT NEITHER S NOWCEM INDIA LTD. OR VESTAS ARE RELATED TO EACH OTHER NOR THE ASSESSEE IS RELATED TO VESTAS RRB INDIA LTD. OR SNOCEM INDIA LTD. HAS NOT BEEN PROVED TO BE FALSE OR UNTRUE. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE 5 WIND MILLS SOLD BY SNOWCEM INDIA LTD. FOR A COST OF RS.2,09,50,000/ - FOR WHICH COST OF ONE WIND MILL WAS RS.41,90,000/ - ARE VERY OLD AND ARE OF CAPACITY OF 225KW WHEREAS THE 3 WIND MILLS PURCHASED BY THE ASSESSEE FROM VESTAS RRB INDIA LTD. AT RS.6.69 CRORES ARE HARDLY OF 2 T O 3 YEARS OLD AND ARE OF THE CAPACITY OF 500 KW AND THEREFORE THOSE 5 WIND MILLS CANNOT BE COMPARED WITH THE 3 WIND MILLS PURCHASED BY THE ASSESSEE FROM VESTAS RRB INDIA LTD. CANNOT BE COMPARED ALSO COULD NOT BE CONTROVERTED BY THE LEARNED DR. WE FIND IN T HE INSTANT CASE NO OTHER EXERCISE HAS BEEN DONE EITHER BY THE AO OR CIT(A) TO DETERMINE THE FAIR MARKET VALUE OF THE WINDMILLS AND THEY HAVE SIMPLY ADOPTED THE WDV OF THE 3 WIND MILLS IN THE HANDS OF SNOWCEM INDIA LTD. AS THE COST OF THE 3 WINDMILLS FOR TH E PURPOSE OF CALCULATING DEPRECIATION. WE ALSO FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT EXPLANATION 3 TO SECTION 43(1) IS APPLICABLE IF THE ASSESSEE CLAIMS ENHANCED COST AS THE ACTUAL COST AND THE AO IS ABLE TO SHOW THAT THE COST CLAIMED BY THE ASSESSEE IS MORE THAN THE MARKET VALUE OF THE ASSET. SINCE THE COST OF A NEW WIND MILL HAS BEEN CLAIMED TO BE AROUND RS.2.70 CRORES DURING F.Y. 2003 - 04, THEREFORE, THE MARKET VALUE OF THE SECOND HAND WIND MILLS OF 2 TO 3 YEARS OLD CANNOT BE RS.9 TO 10 LAKHS AS ADOPTED BY THE AO BEING I.T.A. NO . 96 /M/ 16 11 THE WDV OF THE WIND MILLS IN THE HANDS OF THE SNOWCEM INDIA LTD. ESPECIALLY WHEN THE RATE OF DEPRECIATION IS 80% ON WIND MILLS. 17. WE FIND THE AHMEDA BAD BENCH OF THE TRIBUNAL IN THE CASE OF CHITRA PUBLICITY COMPANY PVT. LTD. VS. ACIT REPORTED IN (2010) 127 TTJ (AHD.) (TM) AT PARAS 14 TO 18.2 OF THE ORDER HAS HELD AS UNDER : '14. I HAVE CAREFULLY EXAMINED ABOVE CIRCUMSTANCES/REASONS, ARGUMENTS AND CAS E LAW IN SUPPORT OF APPLICATION OF EXPLN. 3 TO S.43(1) IN THIS CASE. I HAVE ALREADY COMMENTED UPON CIRCUMSTANCE (1) AND ON 'SATISFACTION' OF THE AO THAT MAIN PURPOSE OF TRANSACTION WAS TO CLAIM HIGHER DEPRECIATION ON TRANSFERRED ASSETS IN THE HANDS OF THE ASSESSEE. YET THE MAIN PURPOSE OF EXPLN.3, IN MY VIEW, IS TO EMPOWER THE AO TO DETERMINE ACTUAL COST OF ASSETS WHERE THE ASSESSEE IS WRONGFULLY CLAIMING DEPRECIATION ON ENHANCED COST OF SUCH ASSETS. WHAT IS ACTUAL COST ? HOW IS IT TO BE DETERMINED ? ACTUAL COST OF AN ASSET TO THE ASSESSEE IS ALWAYS QUESTION OF FACT GOVERNED AND DEPENDING UPON THE CIRCUMSTANCES OF THE CASE. HOWEVER, APPLICATION OF PRINCIPLES FOR THE DETERMINATION OF ACTUAL COST IS A QUESTION OF LAW [SEE DECISION OF SUPREME COURT IN THE CASE OF JOGTA COAL CO. LTD. VS. CIT (SUPRA) CITED ABOVE]. THE ACTUAL COST NORMALLY MEANS REAL COST, THE REAL WORTH OF THE ASSETS ACQUIRED BY THE ASSESSEE. DEPENDING UPON THE FACTS OF THE CASE, IT MIGHT BE WDV IN THE HANDS OF THE TRANSFEROR BUT CANNOT BE COST TO THE TRANSFEREE. NO PRINCIPLE OF GENERAL AND UNIVERSAL APPLICATION ON 'ACTUAL COST' IS POSSIBLE TO LAY DOWN. HOWEVER, IN NONE OF THE AUTHORITIES CITED AND NOTED ABOVE, WDV WAS TAKEN AS 'ACTUAL COST'. SOMETHING WAS ADDED TO WDV DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THESE DAYS OF HIGH INFLATION, IT IS A MATTER OF COMMON KNOWLEDGE THAT THERE IS VAST DIFFERENCE BETWEEN MARKET VALUE OF AN ASSET AND ITS WDV AS REFLECTED IN RECORD. FURTHER, COURTS WHILE HOLDING THAT ACTUAL COST IS NOT THE 'PRI CE' PAID, WERE CONCERNED WITH QUESTION WHETHER INCIDENTAL EXPENSES LIKE FREIGHT, WAREHOUSING, INSURANCE CHARGES, LEGAL CHARGES INCURRED IN CONNECTION WITH ACQUISITION AND INTEREST INCURRED ON CAPITAL CONTRIBUTED OR BORROWED TO ACQUIRE ASSETS SHOULD BE ADDE D TO THE PRICE. IT WAS ALSO RIGHTLY ARGUED BY SHRI SOPARKAR THAT ACTUAL COST SHOULD BE TAKEN AS A COMMERCIAL CONCEPT AND UNDERSTOOD IN THE SENSE IN WHICH NO COMMERCIAL MAN WOULD MISUNDERSTAND IT. 15. THE REVENUE AUTHORITIES AND LEARNED AM, IN THE PROPOSE D ORDER, HAVE OBSERVED THAT AO IS AUTHORIZED TO PIERCE THE VEIL OF THE CORPORATE AND ASCERTAIN THE TRUE NATURE OF THE TRANSACTION. THERE CAN BE NO QUARREL ON ABOVE PROPOSITION. HOWEVER, IN MY VIEW, IT IS UNNECESSARY TO FALL BACK ON THE ABOVE LEGAL PROPOSIT ION AS UNDER THE ABOVE EXPLANATION, THERE IS SUFFICIENT POWER WITH THE AO TO DISREGARD THE COST OF ASSETS TAKEN BY THE TRANSFEREE AND DETERMINE THE ACTUAL COST OF THE ASSETS. HE CAN MAKE A DISALLOWANCE, PROVIDED CIRCUMSTANCES ENVISAGED IN THE PROVISION ARE SATISFIED. THE REVENUE AUTHORITIES AND THE LEARNED AM IN THE PROPOSED ORDER HAVE MADE I.T.A. NO . 96 /M/ 16 12 OUT A GOOD CASE THAT THE MAIN PURPOSE OF TRANSFER OF ASSET WAS REDUCTION OF LIABILITY TO INCOME - TAX (BY CLAIMING DEPRECIATION ON ENHANCED COST). HOWEVER, AS ALREADY NOTE D, RECORDING OF ABOVE SATISFACTION IS NOT THE MAIN PURPOSE OF THE EXPLANATION. THE REAL PURPOSE OF THE PROVISION IS TO AUTHORIZE THE AO TO DETERMINE ACTUAL COST TO THE ASSESSEE. WHAT IS THE MEANING OF 'ACTUAL COST' ? 'ACTUAL COST' IS TO BE DETERMINED BY TH E AO HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. IN OTHER WORDS, FACTS AND MATERIAL ON RECORD IS TO BE CONSIDERED IN THE PROCESS OF DETERMINATION OF ACTUAL COST. SUCH COST CANNOT BE ANY FANCY OR IMAGINARY FIGURE. THIS IS CLEAR FROM USE OF STRONG WO RDS LIKE 'DETERMINE' AND CHECK IN THE PROVISION ON ARBITRARY EXERCISE OF POWER BY THE AO. THE AO IS REQUIRED TO DETERMINE THE ACTUAL COST WITH THE PREVIOUS APPROVAL OF THE JT. CIT. THEREFORE, THE AO HAS TO SATISFY JT. CIT THAT EXERCISE OF DETERMINATION OF COST HAS BEEN CARRIED IN A REASONABLE AND PROPER MANNER. THE PROVISION OF APPROVAL BY THE JT. CIT IS FOR THE BENEFIT OF THE REVENUE AND THE ASSESSEE. IT IS TO PREVENT THE AO FROM TAKING ANY AMOUNT AS 'ACTUAL COST'. 16. IT HAS BEEN CONTENDED ON BEHALF OF THE REVENUE THAT ACTUAL COST IS NOT MARKET VALUE BUT IS WDV OF ASSETS IN THE HANDS OF THE TRANSFEREE, PARTICULARLY ON THE FACTS OF THE CASE WHEN VALUE OF HOARDING AND OF GOODWILL/TRADE NAME WAS NIL IN THE BOOKS OF THE ERSTWHILE FIRM. THE ASSESSEE COMPANY, AFTER ACQUISITION CLAIMED DEPRECIATION ON COST OF ASSETS WHICH WAS ARBITRARILY FIXED WITHOUT ANY BASIS. RELIANCE, AS NOTED ABOVE, HAS BEEN PLACED ON PROVISO (C) TO S. 47 (XIII), S. 32(1) AND S. 43(6) OF THE IT ACT. 17. AFTER CAREFUL CONSIDERATION OF ABOVE PROVISIONS AND FACTS AND CIRCUMSTANCES OF THE CASE, I AM UNABLE TO ACCEPT THE STAND OF THE REV ENUE. AS NOTED ABOVE ACTUAL COST SHOULD ORDINARILY MEAN REAL COST OR REAL WORTH OF ASSETS. IF IT IS NOT MARKET VALUE, THEN WHAT IS IT ? MECHANISM TO TAKE WDV AS PROVIDED IN EXPN.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 COMPARED TO NEW ASSETS. IN THE CASE OF TRANSFER OF AN ASSET BET WEEN TWO UNCONNECTED 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 OF DEPRECIATION. THERE IS NO WAY TO IGNORE IT AND IT IS NOT POSSIBLE TO RECORD MERELY THAT THE MAIN PURPOSE OF TRANSACTION IS THE REDUCTION OF INCOME - TAX LIABILITY. SUCH ALP OR MARKET VALUE CANNOT HAVE A DIFFERENT MEANING IN CASE OF A TRANSACTION BETWEEN CONNECTED AND RELATED PARTIES IF FIX ED BONAFIDELY AS PER MARKET CONDITIONS. THERE IS NO PROHIBITION OR CONNECTED PARTIES TO CARRY ARMS' LENGTH TRANSACTIONS WHERE REAL VALUE OF THEM TRANSFERRED IS PAID. LAW FROWNS ON FRAUDULENT TRANSACTION CARRIED TO HOODWINK THE REVENUE. HAVING HELD THAT THE ASSESSEE HAS SHOWN ENHANCED COST OF ASSETS, THE AO UNDER EXPLN. 3 TO S.43(1) HAS TO DETERMINE THE 'ACTUAL COST' TO ASSESSEE WHICH CAN ONLY MEAN ARM'S LENGTH VALUE OR REAL VALUE OR WORTH OF ASSETS TRANSFERRED. I.T.A. NO . 96 /M/ 16 13 ABOVE PROPOSITION HAS BEEN DULY ACCEPTED BY CO URTS. IN THE CASE OF GINNERS & PRESSERS (P) LTD. VS. CIT (SUPRA), THE DECISION OF BOMBAY HIGH COURT STRONGLY RELIED UPON BY THE REVENUE, THEIR LORDSHIPS HAVE MADE THE FOLLOWING OBSERVATIONS. 'THERE IS NO DOUBT THAT, IN THE ABSENCE OF FAIR MARKET VALUE OF T HE ASSETS TRANSFERRED BEING KNOWN ON THE DATE OF TRANSFER, THE REQUISITE INFERENCE UNDER THE PROVISO TO S. 10(5)(1) OF THE ACT CANNOT BE DRAWN. BUT IT IS NOT AS IF THE TAXING AUTHORITIES AS WELL AS THE T RIBUNAL HAVE NOT DEALT WITH THIS ASPECT OF THE MATTER AT ALL WHILE DECIDING THE QUESTION OF APPLICABILITY OF THE PROVISO TO S. 10(5)(1) TO THE FACTS OF THE PRESENT CASE'. 17.1 IT IS, THEREFORE, NOT POSSI BLE TO TOTALLY REJECT THE CONCEPT OF MARKET VALUE OF THE ASSETS TRANSFERRED AS NOT RELEVANT FOR DETERMINING 'ACTUAL COST'. THE PROVISION REQUIRES CONSIDERATION OF ALL THE CIRCUMSTANCES INCLUDING COST IN THE HANDS OF THE TRANSFEROR, WDV, INFLATIONARY TRENDS , CONDITIONS AND LIFE OF ASSETS TRANSFERRED ETC. IN THE EXERCISE OF DETERMINATION OF COST OF ASSETS. IT IS TRUE THAT COST SHOWN IN THE TRANSFER IS PRIMARILY THE COST TO THE TRANSFEREE AND SUCH COST THEREFORE, IS A PIECE OF GOOD EVIDENCE. BUT COST SHOWN IS NOT FINAL AND AO IS EMPOWERED UNDER EXPLANATION TO REVALUE THE ASSET AND DETERMINE ITS ACTUAL COST. HE HAS TO DETERMINE THE COST ON SOME GOOD AND ACCEPTABLE BASIS. IN THE PRESENT CASE, ACTUAL COST OF HOARDINGS AND OF GOODWILL HAS BEEN TAKEN AT NIL MERELY B ECAUSE SUCH ASSETS WERE NOT SHOWN AS AN ASSET IN THE ACCOUNTS OF THE ERSTWHILE FIRM AND NO DEPRECIATION WAS CLAIMED. THIS ACTION OF THE AO ENDORSED BY HIGHER AUTHORITIES AND IN THE PROPOSED ORDER OF LEARNED AM, IN MY VIEW HAS NO LEGAL SUPPORT. AS ALREADY D ISCUSSED, PROVISIONS OF S.47(XIII) OR OF S.43(6) ARE NOT ATTRACTED HERE AS THESE PROVISIONS HAVE VERY DIFFERENT PURPOSES TO SERVE. THESE DEEMED PROVISIONS CANNOT BE READ IN THE EXPLN. 3. 17.2 THE PLAIN LANGUAGE OF THE PROVISION [EXPLN.3 TO S.43(1)] LEAVE S NO AMOUNT OF DOUBT THAT IT IS AO WHO HAS TO RECORD SATISFACTION RELATING TO MAIN PURPOSE OF THE TRANSACTION TO THE ASSESSEE (REDUCTION OF LIABILITY TO INCOME - TAX). IT IS AO WHO HAS TO DETERMINE 'ACTUAL COST' OF ASSETS HAVING REGARD TO ALL THE CIRCUMSTANC ES OF THE CASE AND WITH THE PREVIOUS APPROVAL OF THE JT. CIT. IT SHOULD, THEREFORE, LEAVE NO DOUBT THAT BURDEN TO DETERMINE 'ACTUAL COST' IN ACCORDANCE WITH LAW IS ON AO AND NOT ON THE ASSESSEE. THE AO HAS TO SHOW THAT HE HAS GATHERED RELEVANT MATERIAL AND DETERMINED ACTUAL COST AFTER APPLICATION OF MIND. HIS ACTION IS REQUIRED TO BE APPROVED BY HIS SUPERIORS. 18. IN THE CASE OF CIT VS. JOGTA COAL CO. LTD.(SUPRA), THEIR LORDSHIPS AT P.99 OF THE REPORT REFERRED TO THE CASE OF CRADDOCK VS. ZEVO FINANCE CO. LTD. (1946) 27 TAX CASES 267. THEIR LOR D SHIPS HAVE STATED AS UNDER : 'THE LEARNED LAW LORDS CAME TO THE CONCLUSION THAT THE CROWN HAD FAILED TO ESTABLISH THAT THE VALUE OF THE INVESTMENTS WAS LESS THAN THE NOMINAL VALUE OF THE CONSIDERATION FOR WHICH THE RESPONDENT COMPANY HAD ACQUIRED THEM, I.T.A. NO . 96 /M/ 16 14 NAMELY, THE LIABILITY TO DISCHARGE THE DEBENTURES AND INTEREST THEREON AND THE ALLOTMENT OF THE SHARE CAPITAL AS FULLY PAID'. 18.1 THE JURISDICTIONAL HIGH COURT IN CASE OF ASHWIN VANASPATI INDUSTRIES VS. CIT (SUPRA) AT P.33 OBSERVED AS UNDER: 'HENCE, IT IS CRYSTAL THAT THE AO IS OBLIGED TO RECORD A SATISFACTION THAT THE ASSETS WERE TRANSFERRED FOR REDUCING THE LIABILITY TO PAY INCOME - TAX AND FOR THIS PURPOSE AN APPELLATE AUTHORITY CANNOT SUBSTITUTE ITS OPINION TO SU STAIN THE APPLICABILITY OF THE SAID EXPLN. 3 ONLY BECAUSE THE ASSETS WHICH ARE TRANSFERRED WERE USED BY ANY OTHER PERSON BEFORE THE DATE OF ACQUISITION. THE DUTY CAST UPON THE AO BY THE PROVISION IS TO DETERMINE THE ACTUAL COST AND NOT TO SUBSTITUTE A VALU ER'S OPINION. AT THE SAME TIME, MERELY BECAUSE A DOCUMENT IN THE NATURE OF CONTRACT OR PURCHASE IS ENTERED INTO DENOTING A CERTAIN PRICE THE SAME WOULD NOT CONCLUSIVELY ESTABLISH THE CORRECTNESS OF THE CLAIM MADE BY AN ASSESSEE IF THE AO IS OF THE OPINION THAT THE TRANSACTION IS BY WAY OF SUBTERFUGE OR DEVICE IN ORDER TO AVOID TAX WHICH THE ASSESSEE IS OTHERWISE LIABLE TO PAY OR THAT THE TRANSACTION IS ILLUSORY OR COLOURABLE OR THAT THE ASSESSEE HAS ACTED FRAUDULENTLY. IN SUCH CIRCUMSTANCES, IT WOULD ALWAYS BE OPEN TO THE AO TO GO BEHIND THE CONTRACT AND ASCERTAIN THE ACTUAL COST SO AS TO DETERMINE THE CORRECT LIABILITY TO TAX'. 18.2 INSPITE OF THE CLEAR OBSERVATIONS OF THE JURISDICTIONAL HIGH COURT, FULLY SUPPORTED BY OTHER AUTHORITIES AND CLEAR LANGUAGE THAT 'AO IS OBLIGED', 'DUTY CAST ON AO' TO DETERMINE ACTUAL COST OF ASSETS TO THE ASSESSEE, IN THE PRESENT CASE, THE BURDEN HAS BEEN PLACED ON THE ASSESSEE TO PROVE THAT ACTUAL COST OF ASSET WAS THE VALUE IT HAD CLAIMED FOR THE PURPOSE OF THE DEPRECIATION . NO ATTEMPT WHATSOEVER WAS MADE BY THE AO OR BY THE CIT WHO APPROVED OF HIS ACTION OR BY CIT(A) TO COLLECT ANY MATERIAL OR TO TAKE ANY STEPS TO DETERMINE THE ACTUAL COST OF THE ASSETS. THE EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE AO IN THE SHAPE OF VA LUATION REPORT WAS WRONGLY REJECTED AND ON REASONS WHICH ARE TOTALLY UNSUSTAINABLE. IN SUPPORT OF VALUE (COST OF HOARDINGS AT RS.4,77,96,000/ - AND OF GOODWILL AT RS.3 CRORES), THE REPORTS OF THE REGISTERED VALUER WERE PLACED BEFORE THE AO. THE AO DID NOT C ONSIDER ABOVE REPORTS, ALTHOUGH IT WAS INCUMBENT UPON HIM TO DISLODGE THEM. THE LEARNED CIT(A) IN THE ORDER FOR ASST. YR. 2005 - 06 REJECTED THE REPORT OF VALUATION OF HOARDINGS AS ON 1 ST APRIL, 2003 AS THE REPORT WAS DT. 3RD OCT., 2004 AND HELD IT TO BE GOT PREPARED TO SUIT THE ASSESSEE'S REQUIREMENT. THE LEARNED AM IN HIS PROPOSED ORDER, TOOK A SIMILAR VIEW AND CAST BURDEN ON THE ASSESSEE WITH A GENERAL OBSERVATION THAT ASSESSEE DID NOT LEAD ANY SUPPORTING EVIDENCE TO JUSTIFY THE COST CLAIMED. THE LEARNED A M'S VIEWS ON THE PRODUCTION OF DOCUMENTS ARE FACTUALLY INCORRECT. THE LEARNED JM IN HIS PROPOSED ORDER HAS REJECTED ALL THE ABOVE REASONS INCLUDING THE REASON GIVEN BY THE LEARNED CIT(A) IN THE APPELLATE ORDER'. I.T.A. NO . 96 /M/ 16 15 18. WE FIND THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF WESTERN MAHARASTRA FLOURINE CHEMICAL INDUSTRIES VS. JCIT REPORTED IN 7 SOT 572 HAS HELD AS UNDER (SHORT NOTES) : ' REGARDING THE ALTERNATIVE PLEA OF THE AO FOR GRANTING DEPRECIATION TO THE ASSESSEE ON THE BASIS OF WDV AS PER IT ACT IN THE HANDS OF THE VENDOR BY INVOKING EXPLN. 3 TO S.43(1), THERE IS FORCE IN THE ARGUMENTS OF THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT THERE IS NO SCOPE OF ANY REDUCTION IN TAX LIABILITY OF THE ASS ESSEE IN THE PRESENT YEAR BECAUSE THE RETURNED INCOME IS LOSS AND ASSESSED INCOME IS ALSO A LOSS AND AS PER THE EXPLANATION, THE AO SHOULD BE SATISFIED THAT THE MAIN PURPOSE OF TRANSFER OF SUCH ASSETS WAS THE REDUCTION OF LIABILITY TO INCOME - TAX BY CLAIMIN G DEPRECIATION WITH REFERENCE TO AN ENHANCED COST. THE REVENUE FAILS THIS TEST BECAUSE THERE IS NO REDUCTION OF LIABILITY TO INCOME - TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COST IN VIEW OF LOSS EVEN AFTER DISALLOWANCE OF DEPRECIATION. THIS I S AN ADMITTED FACT THAT IN IT ACT , DEPRECIATION IS ALLOWED AT A HIGHER PERCENTAGE AS AN INCENTIVE, AND HENCE, WDV AS PER IT ACT CANNOT REFLECT THE MAR KET VALUE OF THE PARTICULAR FIXED ASSET. WHEREAS, THE ASSETS ARE SOLD ON THE BASIS OF MARKET VALUE OF THE ASSETS AND NOT ON THE BASIS OF WDV AS PER IT ACT . FOR EXTRA DEPRECIATION ALLOWED TO THE VENDOR AS PER IT ACT AS AN INCENTIVE, THE VENDOR HAS TO BE ASSESSED FOR CAPITAL GAINS ON SALE OF ASSETS BY REDUCING THE WDV AS PER IT ACT FROM SALE PROCEEDS OF THE ASSETS. BUT IN THE HANDS OF THE ASSESSEE, THE ACTUAL COST PAID BY THE ASSESSEE FOR THE ASSETS SHOULD BE CONSIDERED FOR ALLOWING DEPRECIATION TO THE ASSESSEE, PARTICULARLY SO, WHEN THE CONDITIONS REQUIRED FOR INVOKING EXPLN. 3 TO S. 43(1) ARE NOT BEING FULFILLED. THE AO WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION OR IN REDUCING THE CLAIM OF DEPRECIATION BY INVOKING EXPLN. 2 TO S. 43(1) . - UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) AND DY. CIT VS. MAHENDRA M. MEHTA (2004) 89 TTJ (MUMBAI) 1 RELIED ON'. 19. VARIOUS DECISIONS RELIED ON BY THE LEARNED DR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF JCIT VS. MAHINDRA SONA LTD. REPORTED IN 96 ITD 303 IT HAS BEEN HELD THAT WHEREIN AN ASSET WAS ALREADY IN USE IN A BUSINESS IN HANDS OF ONE PERSON AND ITS WDV HAS BEEN ASCERTAINED BY THE AO AND THAT PERSON TRAN SFERS ASSETS TO ANOTHER PERSON FOR A PRICE EXCEEDING THIS WDV, IT IS OPEN TO AO TO REFUSE TO ACCEPT THE SALE PRICE AS 'ACTUAL COST' TO PURCHASER IN PURCHASER'S ASSESSMENT IF HE IS SATISFIED THAT MAIN PURPOSE OF TRANSFER WAS REDUCTION OF LIABILITY TO INCOME - TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO ENHANCED COST. HOWEVER, THE SAME IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE INSTANT CASE, SNOCEM INDIA LTD. HAS NOT TRANSFERRED THE WIND MILLS TO THE ASSESSEE AND THE ASSESSEE HAS PURCHASED TH E WIND MILLS AT A COST OF RS.6,69,85,000/ - FROM VESTAS RRB INDIA LTD. AND PAYMENT HAS BEEN PAID BY CHEQUE. IT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE THAT IT IS NOT RELATED TO EITHER SNOWCEM INDIA LTD OR I.T.A. NO . 96 /M/ 16 16 VESTAS RRB INDIA LTD. SIMILARLY VESTAS RRB INDIA LTD. AND SNOWCEM INDIA LTD. ARE NOT RELATED TO EACH OTHER. 20. SIMILARLY THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. POULOSE AND MATHEN PVT. LTD. (SUPRA) IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE THE A SSESSEE COMPANY, AS A PARTNER, HAD TAKEN OVER THE ASSETS OF THE PARTN ERSHIP FIRM BY REVALUING THEM AT A VERY HIGH FIGURE FOR WHICH THE HIGH COURT HELD THAT THE MAIN PURPOSE OF THE TRANSFER OF THE ASSET TO THE ASSESSEE WAS TO REDUCE THE TAX LIABILITY. THUS, IT WAS A CASE OF A TRANSFER FROM A RELATED PARTY AND THE FAIR MARKET VALUE WAS ENHANCED DELIBERATELY BY THE ASSESSEE TO CLAIM HIGHER DEPRECIATION. HOWEVER, IN THE INSTANT CASE THE WIND MILLS ARE NOT PURCHASED BY THE ASSESSEE FROM A RELATED PARTY. FURTHER, THE PRICE PAID BY THE ASSESSEE CANNOT BE HELD UNREASONABLE ESPECIALL Y WHEN THE COST OF A NEW WIND MILL OF 500KW CAPACITY WOULD HAVE BEEN WITHIN A PRICE RANGE OF RS.2.50 CRORES TO RS. 2.70 CRORES AND THE AVERAGE LIFE OF A WIND MILL BEING 20 YEARS THE PRICE PAID FOR A WIND MILL OF 2 TO 3 YEARS OLD AT RS. 2.25 CRORES APPROXIM ATELY CANNOT BE HELD AS UNREASONABLE WHICH IS THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND NOT CONTROVERTED BY THE REVENUE. THEREFORE, THE DECISION RELIED ON BY THE CIT(A) AND THE LEARNED DR, IN OUR OPINION, CANNOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. 21. SO FAR AS THE RELIANCE OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA DADRI CEMENT LTD. REPORTED IN 125 ITR 510 WE FIND IT WAS HELD IN THE ABOVE CASE THAT WHEN THE ASSESSEE HAS PAID AN EXCESSI VE AMOUNT TO CONNECTED PERSONS IN A COLLUSIVE TRANSACTION, THE DEPARTMENT IS ENTITLED TO ASCERTAIN THE ACTUAL COST. HOWEVER, IN THE INSTANT CASE THE TRANSACTION IS NOT BETWEEN CONNECTED PERSONS AND IT HAS NOT BEEN PROVED OR BROUGHT ON RECORD BY THE LOWER A UTHORITIES THAT IT IS COLLUSIVE IN NATURE. WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT VESTAS RRB INDIA LTD. OR SNOWCEM HAD NO INTEREST IN THE REDUCTION OF TAX LIABILITY OF THE ASSESSEE SINCE NOTHING HAS BEEN BROUGHT TO OUR NOTICE THAT EITHER VESTAS RRB INDIA LTD. OR SNOWCEM ARE RELATED TO THE ASSESSEE OR THEY ARE RELATED TO EACH OTHER. 22. THE VARIOUS OTHER DECISIONS RELIED ON BY THE AO AND CIT(A) ARE ALSO DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THOSE CASES THE TRANSACTIONS HAVE TAKEN PLACE BETWEEN RELATED PARTIES. IN THIS VIEW OF THE MATTER AND RELYING ON THE DECISION OF THE THIRD MEMBER (AHMEDABAD BENCH) OF THE TRIBUNAL IN THE CASE OF CHITRA PUBLICITY COMPANY PVT. LTD.(SUPRA) AND THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN MAHARASTRA FLOURINE CHEMICAL INDUSTRIES (SUPRA) WE HOLD THAT THE ACTUAL COST PAID BY THE ASSESSEE AT RS.6,69,85,000/ - TO VESTAS RRB INDIA LTD. BEING COST OF 3 WIND MILLS SHOULD BE CONSIDE RED AS COST PRICE FOR ALLOWING THE DEPRECIATION TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 16. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE I.T.A. NO . 96 /M/ 16 17 JUDICIAL PRONOUNCEMENTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 16 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.