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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER L.P. SAHU, A,M.:: for AY 2013-14
This appeal filed by the assessee is directed against CIT(A) – 2, Hyderabad’s order dated 20/06/2017 for AY 2013-14 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act”.
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The only ground in this appeal is against the action of the CIT(A) in confirming the addition of Rs. 39,51,885/- made by the AO towards assessee’s claim of depreciation.
Briefly the facts of the case are that the assessee company engaged in the business of manufacturing of steel structural, filed its return of income for the AY 2013-14 on 01/10/2013 declaring a total loss of Rs. 38,54,141/-. Subsequently, the case was selected for scrutiny under CASS and accordingly, statutory notices were issued to the assessee.
3.1 During the course of assessment proceedings, the AO observed that the assessee had entered into an MoU with M/s Kotagi Structural Sand Galvanizing Pvt. Ltd. (in short “KSGPL”) and agreed to take over all the assets and liabilities of the KSGPL towards the Indian Bank loan to an extent of Rs. 8,79,45,150/-. Subsequently, an amendment to the MoU was entered into between the parties as per which the assessee agreed to take over the liabilities only to an extent of Rs. 6,29,45,150/- . Further, the AO observed as under:
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Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) after considering the submissions of the assessee dismissed the appeal of the assessee by holding that the AO has rightly disallowed the assessee’s excess claim of depreciation of Rs. 39,51,885/-.
Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT.
Before us, the ld. AR of the assessee reiterated the submissions made before the revenue authorities and submitted that the entire fixed assets of KSGPL was taken over by the assessee company at a value of Rs. 6,18,08,650/-, which was recorded by the KSGPL in its books of account as sale price and the difference had been offered as a short term gains during the impugned AY and, he therefore submitted that there is no loss to the revenue. He submitted that both the parties have entered into MoU and accepted purchase and sales price by both the companies, i.e., purchaser and seller. He also submitted that in the latter year, the same assets were sold by the assessee company on 24th December, 2014 for Rs. 5,20,00,000/- for a much higher amount than the WDV of assets in the assessee’s hands, to M/s ePower Energy India Pvt. Ltd. , which is an unrelated company and offered a short term capital gains of Rs. 52,59,061/- for the AY 2015-16. He,
:- 6 -: & 284/Hyd/2020 Hyderabad Galvanising Pvt. Ltd., Hyd. therefore, submitted that the assessee did not obtain any undue benefit or advantage on the purchase of the assets at a higher rate than the WDV in the case of seller as held by the AO in his assessment order. He, therefore, submitted that the assessee has not claimed excess depreciation.
The ld. DR, on the other hand, besides relying on the orders of revenue authorities submitted that the assessee company has not taken any scientific methods for arriving valuation of the assets as on the date of transfer between two companies and, therefore, the AO has rightly applied section 43(1), Explanation - 3 and there are undue benefits taken by the assessee for claiming excess depreciation by adopting excess value, which was the value over and above from the erstwhile company. He submitted that the AO was not satisfied with the valuation of assets by the assessee and obtained permission before passing the order as per the explanation given in the IT Act.
After considering the rival submissions and perusing the material on record as well as the orders of revenue authorities, we find substance in the submissions of the ld. DR that there should be a proper method to value the fixed assets as on the date of purchase of the same, which was not done by the assessee while purchasing the assets of KSGPL. He submitted that merely evaluating the value of the fixed assets with Bank loan is not proper as observed by :- 7 -: & 284/Hyd/2020 Hyderabad Galvanising Pvt. Ltd., Hyd.
the AO in his order. The assessee has debited Rs. 2,86,65,821/- in excess of WDV of the assets as on the date of transfer. The AO has also observed that 30% shares in both the companies are held by a person, namely, Shri N. Srikanth Reddy, who is a common shareholder in both the companies. We observe from the order of AO that during the assessment proceedings, the assessee has not produced any documentary evidence except the MoU and financial statements to establish that the correct value has been adopted by the company for purchasing assets of KSGPL for the satisfaction of the AO. In this connection, we reproduce the provisions of section 43(1) as under: “43. (1) 5 " 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 5 Assessing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income- tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the 6 Assessing] Officer may, with the previous approval of the 7 Deputy] Commissioner, determine having regard to all the circumstances of the case.
8.1 From the above, it is clear that the AO has rightly invoked section 43(1), Explanation - 3 when the assessee failed to value the actual cost of the assets purchased by it. Therefore, considering the totality of the facts of the case, we find no infirmity in the order of the CIT(A) in upholding the action of the AO in disallowing the excess claim of :- 8 -: & 284/Hyd/2020 Hyderabad Galvanising Pvt. Ltd., Hyd. depreciation by the assessee. Accordingly, the grounds raised by the assessee on this issue are dismissed.
In the result, appeal of the assessee is dismissed.
On perusal of record, we find that the CIT(A) dismissed the appeal of the assessee when the assessee failed to appear before him and substantiate its ground of appeal with evidences. Further, on merits also, the CIT(A) discussed the issue and confirmed the order of AO on the ground that the assessee failed to appear before him and substantiate its claim with evidences.
11. After considering the submissions of both the parties and perusing the material on record as well as the orders of revenue authorities, we are of the view that interest of justice will be served if the appeal of the assessee is remitted to the file of CIT(A) with a direction to give one more chance to the assessee to present its case before him on merits with documentary evidence to substantiate its claim. The CIT(A) is directed to reasonable opportunity of hearing to the assessee in the matter. We direct the assessee to appear before the CIT(A) with all the relevant evidences to substantiate her claim; at its own risk and :- 9 -: & 284/Hyd/2020 Hyderabad Galvanising Pvt. Ltd., Hyd.
responsibility to be followed by three effective opportunities of hearing.
In the result, appeal of the assessee is treated as allowed for statistical purposes.
To sum up, appeal in is dismissed and the appeal in is allowed for statistical purposes. Pronounced in the open court on 18th January, 2022.
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 18th January, 2022. kv Copy to : 1 Hyderabad Galvanising Pvt. Ltd., C/o Katrapathi & Associates, 1-1-298/2/B/3, 1st Floor, Ashok Nagar, Hyderabad – 500 020 2 ACIT, Circle – 2(2), Hyderabad. 3 ITO, Ward – 2(3), Hyderabad 4 CIT(A) - 2, Hyderabad. PR. CIT - 2, Hyderabad. 5 ITAT, DR, Hyderabad. 6 7 Guard File.
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S.No. Details Date 1 Draft dictated on 2 Draft placed before author Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement 7 File sent to Bench Clerk 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order