The Income Tax Appellate Tribunal (ITAT), Chennai bench, held that no enhanced cost was paid for the transfer of the textile spinning unit acquired through an auction sale of Bank of Baroda. Therefore, the bench allowed the depreciation.
The assessee, Varadaraja Textiles, acquired the textile spinning unit through an auction sale of Bank of Baroda for a total cost of Rs. 7.33 crores during the financial year 2012-13. The assessee claimed depreciation for the same building and machinery at the purchase price of Rs. 7.33 crores. In addition to this, they claimed normal depreciation on the above plant and machinery, as well as additional depreciation.
However, the Assessing Officer (AO) disallowed the claim of depreciation as per the provisions of Explanation (3) to section 43 of the Income Tax Act by taking the written down value of the building and machinery as ‘zero.’
Aggrieved, the assessee preferred an appeal before CIT(A), who dismissed the appeal of the assessee. Therefore, the assessee filed a second appeal before the tribunal.
During the appeal proceedings, R. Vijayaraghavan, counsel for the assessee, submitted that the assessee was a successful bidder at the Bank of Baroda auction and paid a consideration of Rs. 7.33 crores to purchase this textile spinning facility, which includes land, a structure, and equipment.
Furthermore, once the textile unit is acquired by the assessee in an open auction, there is no question of any element of enhanced cost paid to any party. Thus, the AO has simply reproduced Explanation (3) to section 43 of the Income Tax Act, and there is no satisfaction recorded by him that the assessee has paid enhanced cost.
P. Sajit Kumar, Counsel for Revenue, argued that the transfer of the asset directly or indirectly to the assessee by another person was for the purpose of reducing liability to income tax by claiming depreciation with reference to the enhanced cost paid by the assessee.
It was observed by the tribunal that once the building and machinery are acquired by the assessee through an open auction from Bank of Baroda, there is no question of any enhanced cost paid by the assessee for such a transfer.
After reviewing the contentions of both parties, the two-member bench of Manjunatha.G (Accountant Member) and Mahavir Singh (Vice President) allowed the depreciation claimed on the textile spinning unit acquired through an auction sale.
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