ITA NOS. 1955 & 1956/Del/2013
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A", NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
H.S. SIDHU, JUDICIAL MEMBER
I.T.A.Nos.1955 &
1956/Del/2013
A.YRS. : 2008-09 &
2009-10
DCIT, CIRCLE 2(1), M/S AVANTHA POWER &
ROOM NO. 398-D, VS. INFRASTRUCTURE LTD.,
C.R. BUILDING, THAPAR HOUSE, 124,
NEW DELHI JANPATH,
NEW DELHI 110 001
(PAN: AACCB7469B)
(APPELLANT) (RESPONDENT)
Department by : Smt. A. Mishra, CIT(DR)
Assessee by : Sh. Akhil Mahaja, CA
Date of Hearing : 19-02-2015
Date of Order : 20-02-2015
ORDER
PER H.S. SIDHU : JM
The Revenue has filed these Appeals against the common
impugned Order dated 04/1/2013 passed by the Ld. Commissioner
of Income Tax (Appeals)-V, New Delhi. Since the issue involved in
both the appeals is common, hence, we are disposing of the
appeals by this consolidated order for the sake of brevity, by dealing
the ITA No. 1955/Del/2013 (A.Y. 2008-09).
2. The grounds raised in ITA No. 1955/Del/2013 (A.Y. 2008-09)
read as under:-
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ITA NOS. 1955 & 1956/Del/2013
1. Whether the Ld. CIT(A) has erred in law and on facts
in deleting the addition of Rs. 11,63,24,923/- made
on account of disallowance of depreciation u/s. 32
of the I.T. Act, 1961 by invoking Explanation 3 of
Section 43(1) of the I.T. Act, 1961.
2. The appellant craves leave for reserving the right
to amend, modify, alter, add or forego any
ground(s) of appeal at any time before or during
the hearing of this appeal.
3. The grounds raised in ITA No. 1956/Del/2013 (A.Y. 2009-10)
read as under:-
1. Whether the Ld. CIT(A) has erred in law and on facts
in deleting the addition of Rs. 11,53,53,162/- made
on account of disallowance of depreciation u/s. 32
of the I.T. Act, 1961 by invoking Explanation 3 of
Section 43(1) of the I.T. Act, 1961.
2. The appellant craves leave for reserving the right
to amend, modify, alter, add or forego any
ground(s) of appeal at any time before or during
the hearing of this appeal.
4. The facts narrated by the Revenue in both the appeals are not
disputed by both the parties, hence, need not to repeat the same
here for the sake of brevity. The only issue involved in the presents
appeals are regarding the deletion the addition of
Rs. 11,63,23,923/- for (A.Y. 2008-09) and Rs. 11,53,53,162/- (for A.Y.
2009-10) made on account of disallowance of depreciation u/s. 32 of
the I.T. Act, 1961 by invoking Explanation 3 of Section 43(1) of the
I.T. Act, 1961.
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ITA NOS. 1955 & 1956/Del/2013
5. At the time of hearing Ld. Counsel of the assessee made a
statement that the issue in dispute has already been adjudicated
and decided in assessee's favor by the ITAT in assessee's own case
for the Asstt. Year 2007-08 in ITA No. 3259/Del/2010 title Bilt
Power Limited (now known as) Avantha Power & Infrastructure
Limited and in ITA No. 4276/Del/2010 (A.Y. 2007-08) DCIT vs. Bilt
Power Limited (now known as) Avantha Power & Infrastructure
Limited vide Order dated 9.11.2012.
6. Ld. Counsel for the assessee further stated that Ld. CIT(A) in
the impugned order has also deleted the addition in dispute by
respectfully following the order of the ITAT in assessee's own case
for the Asstt. Year 2007-08 in ITA No. 3259/Del/2010 title Bilt
Power Limited (now known as) Avantha Power & Infrastructure
Limited and in ITA No. 4276/Del/2010 (A.Y. 2007-08) DCIT vs. Bilt
Power Limited (now known as) Avantha Power & Infrastructure
Limited vide Order dated 9.11.2012, hence, he requested the order
of the Ld. CIT(A) may be upheld.
7. On the contrary, Ld. DR relied upon the order passed by the
AO.
8. We have heard both the counsel and perused the relevant
records available with us, especially the order passed by the Ld.
CIT(A) and the aforesaid order of the ITAT. We find that Ld. Ld.
CIT(A) has respectfully following the order of the ITAT in assessee's
own case for the Asstt. Year 2007-08 in ITA No. 3259/Del/2010 title
Bilt Power Limited (now known as) Avantha Power & Infrastructure
Limited and in ITA No. 4276/Del/2010 (A.Y. 2007-08) DCIT vs. Bilt
Power Limited (now known as) Avantha Power & Infrastructure
Limited vide Order dated 9.11.2012. We also find that in the asstt.
year 2007-08, AO has made similar addition regarding disallowance
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ITA NOS. 1955 & 1956/Del/2013
of depreciation u/s. 32 of the I.T. Act by invoking the Explanation 3
of Section 43(1) of the I.T. Act, 1961 and aggrieved by the same,
Assessee filed an Appeal before the Ld. CIT(A), who has allowed the
Appeal filed by the assessee on the issue of depreciation u/s. 32 and
allowed the depreciation. Aggrieved by the order of the Ld. CIT(A),
Revenue filed an Appeal before the ITAT, who vide its Order dated
9.11.2012 affirmed the finding of the Ld. CIT(A) on the deletion of
disallowance of deprecation made by the AO. We find that the Ld.
CIT(A) in the asstt. years in dispute i.e. 2008-09 and 2009-10 has
adjudicated the issue vide common order dated 4.1.2013 as under:-
"3. Basically the grounds of appeal pertain to (i)
disallowance of loan processing fee and (ii)
disallowance of depreciation on assets acquired. As per
the appellant, similar issue was involved in the AY
2007-08 and the CIT(A) had allowed the depreciation,
but had allowed the claim on account of loan
processing fee on proportionate basis i.e. 1/10th of the
loan processing fee each year. Both the department
and the appellant went in appeal before the ITAT and
the ITAT has passed a detailed order dated
9.11.2012.The ITAT has confirmed the finding of the
CIT(A) deleting the disallowance of depreciation made
by the AO against which the department had gone in
appeal; however, in regard to loan processing fee it has
reversed the order of CIT(A) and has held the
expenditure as capital in nature, however it has
directed that the loan processing fee being capital in
nature, depreciation should be allowed thereon.
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ITA NOS. 1955 & 1956/Del/2013
3.1 On the issue of depreciation, the relevant paras-
2.17 to 2.23 of CIT(A)'s order dated 11.6.2010 for AY
2007-08 are reproduced as under:-
"2.17 The submission of the appellant has been
considered. It is admitted position under the law that
the "Actual cost" means arm's length value or real
value or worth of assets transferred. A. a. having cited
no good ground for not accepting the cost of the assets
in question as valued by registered valuer. Moreover,
he has not made any attempt to undertake the exercise
of finding out the actual cost of said assets acquired by
appellant, as because main purpose of Explanation 3 is
not recording the satisfaction but to determine actual
cost. In the appellant's case, impugned transfer of
assets has not been made by a holding company to its
subsidiary as referred to by the A.O. in the case of M/s
Dalmia Ceramic Industrial Ltd. vs CIT [277 ITR 219
(Del)]
Arrangement of fund and furnishing security thereof to
the lending bank do not fortify the case of the appellant
for the purpose of applicability of Explanation 3 of
section 43 (1) of the Act. Moreover, price paid by the
appellant company to the transferor company was duly
disclosed by the Transferor Company and resultant tax
on capital gains for the "slump sale" has also been
paid.
The AO lacks technical competency to value the plant &
machinery transferred from transferor company to
transferee company. Though there are three valuers
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ITA NOS. 1955 & 1956/Del/2013
giving the reports and finally it is approved by High
Courts of Delhi and Bombay, we should not doubt on
valuation of assets. If at all any doubt persists, an
opinion can be obtained from departmental valuers of I.
T. department who are appointed for valuing plant and
machinery.
After getting approval from High Court of Delhi, the
transferee had paid, the tax on Long Term Capital
Gains that arose on transfer of such assets. When there
is transfer of old assets, valuation of such assets on
transfer may arise due to escalation of present value of
such assets on transfer. We cannot tax the transferor
and transferee company twice on same transaction by
disallowing depreciation. When the transferee company
is paying higher amount of RS.235 crores (and NOT 86
crores), then he should get depreciation on Rs.235
crores only. The transferor company had paid Long
Term Capital Gain on 235 crores after High Court's
order of transfer.
2.18 Definition of 'demerger' inclusive of its
conditionality for application as per Section 2(19AA) of
the Income Tax Act as under:-
(19AA)"demerger", in relation to companies, means the
transfer, pursuant to a scheme of arrangement under
sections 391 to 39479 of the Companies Act, 1956 (1 of
1956), by a demerged company of its one or more
undertakings to any resulting company in such a
manner that-
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ITA NOS. 1955 & 1956/Del/2013
(i)a the property of the undertaking, being transferred
by the demerged company, immediately before the
demerger, becomes the property of the resulting
company by virtue of the demerger;
(ii)all the liabilities relatable to the undertaking, being
transferred by the demerged company, immediately
before the demerger, become the liabilities of the
resulting company by virtue of the demerger;
(iii)the property and the liabilities of the undertaking or
undertakings being transferred by the demerged
company are transferred at values appearing in its
books of account immediately before the demerger;
(iv)the resulting company issues, in consideration of
the demerger, its shares to the shareholders of the
demerged company on a proportionate basis;
(v)the shareholders holding not less than three -
fourths in value of the shares in the demerged
company (other than shares already held therein
immediately before the demerger, or by a nominee for,
the resulting company or, its subsidiary) become share-
holders of the resulting company or companies by
virtue of the demerger, Otherwise than as a result of
the acquisition of the property or assets of the
demerged company or any undertaking thereof by the
resulting company;
(vi) the transfer of the undertaking is on a going
concern basis;
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(vii) the demerger is in accordance with the
conditions, if any, notified under sub-section (5) of
section 72A by the Centre! Government in this behalf.
2.19 As per section 2(42C) "slump sale" means the
transfer of one or more undertakings as a result of the
sale for a lump sum consideration without values being
assigned to the individual assets and liabilities in such
sales.
Expln.1-For the purposes of this clause, "undertaking"
shall have the meaning assigned to it in Explanation 1
to clause(19AA).
Expln.2-For the removal of doubts, it is hereby declared
that the determination of the value of an asset or
liability for the sole purpose of payment of stamp duty,
registration fees or other similar taxes or fees shall not
be regarded as assignment of values to individual
assets or liabilities.
2.20 The AO has treated that the transfer of
unc1ertaking as demerqer and applied Explanation 3 of
Section 43(1) of the Act even when all the conditions
laid down under the I. T. Act were not fulfilled in this
transfer of undertaking.
2.21 APIL is a separate company having different
shareholders and directors from the transferor
company i.e. M/s Ballarpur Industries ltd. Conditions
stipulated in Section 2(19AA) are not fulfilled in
transaction of transfer of the undertaking by the
transferor company therefore, the transfer of
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ITA NOS. 1955 & 1956/Del/2013
undertaking of power generation business is not a
demerger as per IT Act as stipulated u/s 2(19AA) of the
Act.
2.22 The assessee had accounted and treated the
transfer of the aforesaid undertaking on a slump sale
basis. There has been a transfer of an undertaking
without assigning the values to individual assets and
liabilities. The consideration of Rs. 235 crores is for the
entire undertaking of power generation business taken
over by the assessee company from M/s Ballarpur
Industries Ltd.
2.23 In view of the above, I am of the considered
view that the appellant's case does not fall within the
ambit of Explanation 3 to Section 43(1) of the Act.
Accordingly, disallowance made in the order in respect
of depreciation Rs. 11,75,03,529/- is not sustainable
and hence deleted. Accordingly, A.O. is directed to
allow depreciation on actual cost of Rs.235 crore as
adopted on the basis of valuation reports by the
valuers and declared in the scheme approved by the
court and also computed by the Auditor in the Tax
Audit Report as per provisions of section 32 of the Act.
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The above finding of the CIT(A) has been
confirmed by the ITAT after appreciating the facts and
law of their own. The relevant paras 35 to 46 of the
order of the ITAT are reproduced as under:-
"35. We have considered the rival submissions and
have perused the record of the case.
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ITA NOS. 1955 & 1956/Del/2013
36. At the outset, we may observe that AO has not
considered the entire scheme as demerger under the
Income-tax Act as contemplated u/s 2(19AA) of the
Income-tax Act. Therefore, we do not consider it
necessary to examine the observations of AO, and Id.
CIT(A) and the submissions of both the parties on this
count as it would only be of academic interest. This is
evident from the fact that AO has invoked Explanation
3 to sec. 43(1) and not Explanation 7A to sec. 43(1).
Further the contention of assessee that transferor
company had also paid long term capital gain tax on
the sale consideration is also not of much significance
because tax liability is to be determined qua assessee.
Therefore) the main issue for our consideration is
whether AO was justified in invoking Explanation 3 to
sec.43(1) by holding that the entire purpose of this
scheme was reduction of tax liability by claiming higher
depreciation in respect of those assets which were
earlier used by transferor company by escalating the
case of the assets.
Explanation 3 has been incorporated in sec. 43(1) to
counter the attempts of assessee to claim higher
depreciation by purporting to purchase assets at more
than their true or real cost. It is fundamental principle
that department cannot question the wisdom of
assessee in carrying out its business operations.
Department cannot dictate as to how the assessee
should conduct its business. However, legislature has
made specific provisions in the Income Tax Act when
department can depart from this fundamental principle
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and ignore the apparent state of affairs and peace the
smoky screen created by assessee in the transaction to
find out the true intention. These sections provide
circumstances in which department can impute its
judgment to the assessee's decision. The relevant
provisions are to be found in section 40A(2),
Explanation 3 to sec. 43(1), section 92C etc. But before
these provisions can be invoked, legislature has
required the AO to acquire necessary satisfaction in
this regard which obviously has to be acquired
judiciously and not arbitrarily. The AO should
demonstrate that his satisfaction was rational and
based on relevant factors. Explanation 3 to section
43(1) reads as under: -
43. "In sections 28 to 41 and in this section,
unless the context otherwise requires-
(1) "actual cost" means the actual cost of the assets 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.
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 AO is satisfied that the main
purpose of the transfer of such assets, directly or
indirectly to the asseessee, 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 AO may, with
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ITA NOS. 1955 & 1956/Del/2013
the previous approval of the Joint Commissioner,
determine having regard to all the circumstances of
the case."
Thus, the basic ingredients of Explanation 3 are
as under: -
i) an asset was already in use in a business in the
hands et one persons:
ii) that person transfers the asset to assessee;
iii) the AO is satisfied that the main purpose of transfer
rj( such assets was the reduction of liability to Income-
tax by claiming depreciation with reference to an
enhanced cost;
iv) The AO can refuse to accept the sale price as the
actual cost to the purchaser (assessee) in the
purchasers assessments.
37. The legislature has prefixed the word "actual" to
the word "cost" which clearly signifies that emphasis is
on the reality and genuineness of the cost so as to
exclude collusive, inflated, deflated or fictitious cost. As
already pointed out that the AD is required to
judiciously acquire the necessary satisfaction regarding
the object of transfer. It is not to be understood that
every case wherever assessee acquires a used asset
from other person then the object would only be
reduction of tax liability. There may be genuine cases
also where the asset has appreciated in value since its
original purchase and consequently, the market value
on the date of the sale is greater than written down
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ITA NOS. 1955 & 1956/Del/2013
value in the AD's chart. In the absence of any finding,
that the main purpose of the transfer is to reduce the
tax liability with reference to enhanced cost, it is not
permissible to the AO to reject the cost paid for the
transfer. The AD cannot substitute his own estimate of
the value rejecting the assessee's estimate as was held
in by Hon'ble Supreme Court in Joyta Coal Company
Ltd. vs. CIT, 36 ITR 521. Thus, where at the time of
partition of a family, as was the case in Kalu Ram
Govind Ram vs. CIT, 57 ITR 335, the assets were
allotted among the members at a valuation arrived at
in a reasonable manner, there being no allegation of
inflated cost by reason of fraud/ collusion, subterfuge,
devise or false transaction made with an ulterior
purpose, the department was held to be precluded
from going behind the agreement between the
purchaser and the seller in determining the purchase
price. The thresh hold condition is that the transfer
should be with intent to get the benefit of enhanced
value of asset. Therefore, before invoking Explanation
3, the AO is required to record his satisfaction that
entire transaction was undertaken with a view to
reduce the tax liability by claiming higher depreciation.
Before we embark upon for detailed discussion
regarding actual cost to the assessee in terms of
Explanation 3, we first decide some objections of both
the sides. The assessee's objection is that AO has not
recorded his requisite satisfaction for invoking
Explanation 3 : we are not in agreement with Id. Sr.
Counsel's argument, because as rightly pointed out by
Id. DR, a holistic view is to be taken. The entire
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ITA NOS. 1955 & 1956/Del/2013
discussion by AO proceeds on the premise that the
assessee trying to claim higher depreciation on
enhanced cost. The next objection of Id. Sr. Counsel is
that AO did not determine the actual cost as required in
Explanation 3. We are not in agreement with this
argument also of Id. Sr. Counsel because, as rightly
demonstrated by Id. OR, AO had made all out efforts to
find out the actual cost. We do not find any substance
in this plea of the assessee because AO had taken into
consideration different valuation reports and WOV of
assets before arriving at the conclusion that WDV as
per Income-tax records was the actual cost of assets.
He had also raised the queries with regard to
determination of actual cost of the said assets and
gathered information from the transferor company by
issuing notices u/s 133(6). We are also in agreement
with Id. OR that value approved by the Hon'ble High
Court of Delhi & Bombay was not binding on tax
authorities because the Hon'ble High Court had not
adjudicated the issue of actual cost of the assets as per
the Income-tax Act. However, this had persuasive value
in determining the actual cost of assets. The third
argument is in regard to effective date of transfer. We
are in agreement with the Id. Counsel for the assessee
that the effective date, as per the scheme approved by
the Hon'ble High Court, was 01/04/06 in view of the
decision of Hon'ble Supreme Court in the case of
Marshal! Sons, 223 ITR 809 and the assessee company
obtained the loan against the assets acquired by it from
bank in June, 2006. Further there is no quarrel with the
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ITA NOS. 1955 & 1956/Del/2013
proposition of Id. OR that in certain circumstances WDV
of assets may constitute actual cost to the assessee.
Having considered these aspects, now we proceed to
decide the main issue which is what was the actual cost
to the assessee and consequently whether AO was
justified in invoking the Explanation 3 to sec. 43(1). In
this context we have to find out the real value of assets
acquired by the assessee. In this regard the first aspect
to be taken into consideration is the approval of the
Hon'ble High Court to the scheme of arrangement and
demerger u/s 391 to 394 of the Companies Act. Section
391 of the Companies Act empowers the court to
sanction the scheme. Section 392 empowers the court
to supervise the carrying out of the scheme or to
modify the same as it deems fit. Section 3(94)
empowers the court either through the order
sanctioning the scheme or by a subsequent order to
make provisions for certain matters including
incidental, consequential and supplemental matters as
necessary to secure that the reconstruction or
amalgamation is fully and effectively carried out. In
exercising its discretion to sanction the scheme, the
court considers, firstly whether the statutory provisions
have been fulfilled; secondly, whether the classes were
fairly represented by those who attended the meeting;
thirdly whether the statutory majority was acting
bonafide; and fourthly, whether the scheme is such as
"a man of business" would reasonably approve.
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Following principles have been laid down in the case of
Miheer H.Mafatlal vs. Mafatlal Industries Ltd. (1996) 87
Comp. Cases 792:
1. The requisite statutory procedure for supporting the
Scheme has been complied with and that the requisite
meetings have been held;
2. The Scheme is backed up by the requisite majority
vote as required;
3. At the meeting requisite class persons had the
relevant material to enable them arrive at an informed
decision for approving the Scheme. The majority
decision of the concerned class is just and fair to the
class as a whole so as to legitimately blind even the
dissenting members of that class.
4. Necessary material is placed before the voters at
the meetings concerned;
5. The requisite material is placed before the Court
and the Court is satisfied about the same;
6. The proposed Scheme is found not to be violative of
any provision of law and is not contrary to public policy.
For ascertaining the real purpose underlying the
Scheme with a view to be setistied on this aspect, the
Court, if necessary, can pierce the veil of apparent
corporate purpose underlying the Scheme and can
judiciously X-ray the same;
7. The, requisite class acted in bona fide and in good
faith and did not coerce the minority;
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8. The Scheme as a whole is just, fair and reasonable
from the point of view of prudent men of business
taking a commercial decision beneficial to the class
represented by them for whom [he Scheme is meant;
and
9. Once the aforesaid broad parameters are found to
have been met, the Court will have no further
jurisdiction to sit in appeal over the commercial wisdom
of the majority of the class of persons who with their
open eyes have given their approval to the Scheme
even if in the view of the Court there would be a better
Scheme for the company and its members or
creditors."
38. Therefore, in context to present proceedings, the
effect of order of Hon'ble Delhi High Court is to be
considered keeping in view the aforementioned
aspects. We find that Hon'ble Delhi High Court while
sanctioning the scheme has observed as under: -
"Department of Company Affairs, Noida, on
behalf of Central Government whereby he raiser} three
objections; The first objection is that by the proposed
scheme of arrangement/demerger, the Transferee
Company is liable to pay Rs. 235 crores as
consideration for transfer of "transferred undertaking"
of the Transferor Company. He submitted that share
should have been allotted to the shareholders of the
Transferor Company, instead of paying consideration of
Rs. 235 crores to the Transferor Company and this is
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prime facie against the interest of shareholders of the
Transferor
Company. The Court observed that merely because
consideration is being paid to the Transferor Company,
it cannot be presumed that the scheme as such is
contrary to public interest or against the interest of
shareholders of the Transferor Company. Under normal
circumstances, the Transferor Company could have
always transferred/sole! any of its assets for
consideration to the third party. The Court further
observed that the sale consideration as fixed is based
upon independent judgement of two valuers, namely,
M/s SPB Products and Consultancy Limited, Chennai
and M/s Infrastructure Leasing and Financial Services
Ltd., New Delhi. The Regional Director nowhere stated
or even contended that the sale consideration so fixed
is inadequate and does not represent the market value
of `transferred undertaking-1". The Court did not find
any merit in the said objection and rejected the same.
The second objection is that there is no object clause of
the scheme and therefore, the purpose and benefits
under the scheme as proposed may be ascertained.
The Court observed that the Transferor Company is
being split into three parts and transferred undertaking
no. 1 i.e. (Power Division) is being transferred to the
transferee company for a sum of Rs. 235 crores. Court
did not find any merit in this objection also and rejected
the same. The third objection is in respect of the
articles and memorandum of association of the
transferee company no. 2 and the proposed scheme
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under which transferred undertaking no. 2 i.e. (Real
Estate Division) is to be transferred to the transferee
company no. 2. the Court ordered that it need not
examine this aspect as the Mumbai High Court has
already granted sanction to the scheme of
arrangement/demerger in the case of the transferee
company no. 2; and there being no investigation
proceedings pending in relation to the petitioner
company u/s 235 to 251 of the Companies Act, 1956.
The scheme of Arrangement/Demerger in respect of
Transferor Company and Transferee Company No. 2
has already been sanctioned by High Court of
Judicature at Bombay, Nagpur vide order dt. 25/4/06."
39. Thus, it cannot be denied that the approval granted
by the Hon'ble Delhi High Court had persuasive value
for deciding the actual cost of assets to the assessee. It
could not be ignored particularly because Hon'ble Court
expressly considers the bonafide of the entire scheme.
However, this is not binding on Income-tax Authorities
while considering the actual cost as contemplated in
Explanation 3 to section 43(1)
40. The next aspect to be considered is the object with
which BILT hived off its power division to the assessee
company. The assessee company was set up to
spearhead the power sector initiatives of the Avantha
Power & Infrastructure Group. The objective of
demerger of the power asset of Ballarpur Industries Ltd.
was to create platform, wherein the company could
undertake larger power projects. The company's plans
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ITA NOS. 1955 & 1956/Del/2013
were to expand their generation capacity and
development efforts in order to capitalize on the
prevailing and foreceable future and meet balance
deficit between electricity demand and supply in India.
It was pointed out by the assessee before Id. CIT(A)
that demerger of the power section has resulted in the
following benefit: -
a) Policy to venture into power sector as a business
proposition;
b) Better focus on the power generation as a profit
centre;
c) Independent units could be bench marked against
peers;
d) Better utilization of the capacity since the units has
the flexibility to service other entities
The company had two pronged business model:
_ To manage and expand the existing captive power
plant (CPP) capacities for supporting the group's
requirements as well as for tapping the opportunities
available in the broader market in the form of other
companies captive power requirements; and
_ To spearhead the power sector initiatives of the group
by undertaking super critical and sub-critical power
projects under the independent power project (IPP)
model.
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e) These objectives clearly spelled out the purpose with
which demerger of the power division of Ballarpur
Industries Ltd. was undertaken.
f) The benefit of enhanced depreciation got almost
mitigated because of interest payment of the outsider
viz. all banks as is evident from the working submitted
before the Id. CIT(A). The assessee has taken loan from
ICICI Bank and AXIS Bank (UTI Bank) Rs. 165 crores for
making payment for availing this facility and had paid
more than 2 crores towards loan processing charges.
The AO has not disputed the objective with which
assessee had made this arrangement. The
main/primary objective of assessee is relevant for
purposes of Explanation 3. If the primary objective was
not tax reduction. The Explanation 3 could not be
invoked.
41. The next aspect is regarding interest liability
incurred by assessee towards interest payment on the
loan of Rs. 165 crores taken by it. One cannot loose
sight of the fact that this was actual cash outflow of
assessee and it was not to any related party. This cost
incurred by the assessee was solely on business
considerations in as much as the AO has allowed the
interest charges in assessee's assessment. Here is not
a case where assessee has merely claimed
depreciation on enhanced value of asset but has
simultaneously incurred the interest cost on account of
loan taken from Banks. Therefore, it cannot be said that
the main object was to claim depreciation on enhanced
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ITA NOS. 1955 & 1956/Del/2013
value of assets. The AO has observed that this loan
ultimately benefited BIL T as the payment has been
made to that company only by assessee. We do not
find much substance in this plea of AO as we do not
find any improprietory in this transaction. We further
find considerable force in the submission of Id. Sr.
Counsel for the assessee that such a big loan could not
be availed by assessee without detailed due diligence
being undertaken by the respective banks before
granting loan. Bank has to ensure full security of the
loan given by it. The loan had been given on the
security of assets and, therefore, it cannot be denied
that they must have taken due care to ensure that the
proper valuation of assets was as per the reports of
independent valuers.
42. Ld. CIT(A) has observed and rightly so that AO has
not pointed out any mistake in the valuation report. It is
true that AO is entitled to ignore the valuation report
also but for determining the actual cost of assets it
cannot be denied that it was very material evidence.
43. The AO has observed that the assessee company
had just obtained easementary rights of land having
the plant and machinery and buildings at very nominal
rents for a period of 15 years. The AO after taking into
consideration the nominal rent fixed for this purpose
observed that the obvious reason was that the land
would never have been subject matter of depreciation.
We find that assessee has clarified this aspect by
stating that since BIL T itself was leaseholder therefore,
it could not transfer the lend. We are unable to discern
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ITA NOS. 1955 & 1956/Del/2013
anything wrong in this explanation, as the facts are on
record.
44. In view of above facts, we are of the opinion that Id.
CIT(A) has rightly held that the actual cost of the assets
was Rs. 235 crores and not the written down value as
per Income-tax assessments.
45. There is one more important aspect which fortifies
our view upholding the ld. CIT(A)'s findings. It is
pertinent to note that two WDV'w were available before
the AO one as per the books of the assessee and
second as per the Income-tax computation.
46. Admittedly, as per the books of account of the BIL
T, the WDV was Rs. 214.16 crores on the date of
transfer and the WDV as per Income-tax Act was 86.66
crores. The AO has completely ignored this important
aspect while concluding that the actual cost for
purposes of Explanation 3 to section 43(1) was 86.66
crores as per the Income-tax Act. WDV as per books of
account of the assessee is determined on the basis of
rate of depreciation prescribed under the Companies
Act in Schedule XIV to the Companies Act. The
depreciation rates have been prescribed differently
under Companies Act and Income-tax Act. The object of
allowing depreciation, as a charge against the profits, is
to enable the assessee to recover the original cost of
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ITA NOS. 1955 & 1956/Del/2013
assets in course of time so that when the replacement
of assets is required, the assessee's business
operations do not hamper for the availability of funds.
Therefore, Companies Act prescribes normally such
rates which may ensure the achievement of
aforementioned objective. However, under the Income
Tax Act such rates are prescribed which ensure that
assessee recovers its capital cost in shortest possible of
time. Therefore, the rates of depreciation prescribed
under Companies Act are more realistic. Under the
Companies Act the object is that the company's assets
should continue in the books upto their entire life span.
Be that as it may, since two WDV's were available
before the AO for determining the actual cost, he could
not have ignored the
WDV as per the books of the company the adoption. of
which was more beneficial to company. Admittedly,
there is very minor difference (235 - 214.16) crores in
the valuation of assets as per books of BILT and the
actual consideration paid by the assessee company.
Therefore, this aspect clearly establishes the bonafide
of assessee in adopting the actual cost of assets at Rs.
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ITA NOS. 1955 & 1956/Del/2013
235 crores. We, therefore, do not find any reason to
disturb the findings of Id. CIT(A)."
In view of the above finding of the CIT(A) and the
order of the ITAT confirming the same, the undersigned
holds the appellant eligible for depreciation for both the
asstt. years under consideration i.e. A.Y. 2008-09 and
2009-10. The grounds of appeal pertaining to this issue
are allowed in both the assessment years."
7. After going through the aforesaid order passed by the Ld.
CIT(A) on the issue in dispute as well as the aforesaid ITAT's order
dated 9.11.2012 passed in assessee's own case for the asstt. year
2007-08 relied upon by the Ld. CIT(A) while deleting the addition in
dispute, we are of the considered view that the Ld. First Appellate
Authority has passed a well reasoned order by respectfully following
the aforesaid ITAT's Order dated 9.11.2012 in assessee's own case
for the Asstt. Year 2007-08. We find no infirmity in the order of
the Ld. CIT(A) and therefore, no interfere is required on our part,
hence, we uphold the impugned order passed by the Ld. CIT(A),
which is in accordance with the ITAT's Order dated 9.11.2012 in
assessee's own case for the Asstt. Year 2007-08 in ITA No.
3259/Del/2010 title Bilt Power Limited (now known as) Avantha
Power & Infrastructure Limited and in ITA No. 4276/Del/2010 (A.Y.
25
ITA NOS. 1955 & 1956/Del/2013
2007-08) DCIT vs. Bilt Power Limited (now known as) Avantha
Power & Infrastructure Limited.
8. In the result, both the Appeals of the Revenue are dismissed.
Order pronounced in the Open Court on 20/02/2015.
Sd/- Sd/-
[S.V. MEHROTRA] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 20/02/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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