R.S. SYAL, ACCOUNTANT MEMBER 
AND C.M. GARG, JUDICIAL MEMBER

ORDER

R.S. Syal, Accountant Member - This appeal by the Revenue is directed against the order passed by the CIT(A) on 19.3.2007 in relation to the assessment year 2001-02.

2. It is a recalled matter qua the first ground assailing the view taken by the ld. CIT(A) in directing to adopt value of the depreciated assets at Rs. 89,10,245 as against Rs.22,45,000 taken by the Assessing Officer (AO) and consequently allowing relief of depreciation amounting to Rs. 16,66,311 by ignoring the provisions of section 43(1) of the Act. Earlier, the tribunal passed order in ITA No.445/Del/2010 for the captioned year u/s 254(1) of the Income-tax Act, 1961 (hereinafter also called 'the Act') deciding this issue in favour of the Revenue, by overturning the order of the ld. CIT(A) and restoring that of the AO. On an application filed by the assessee u/s 254(2) of the Act, the tribunal vide its later order dated 3.8.2012, recalled its original order on the first ground.

3. Succinctly, the assessee capitalized a sum of Rs. 89,10,245/-towards certain Equipments (consisting to Centrally Air conditioning unit with Generator, Otis elevator and Fire fighting equipments), purchased from M/s Baba Build Well (BBW), which were earlier installed by them in a premises at 225, Okhla Indl. Estate, Phase III, New Delhi, owned by some other person. This premises consisting of basement, mezzanine, ground, first and second floors was simultaneously acquired by M/s Civic Traders (P.) Ltd., another group concern of the assessee, from such third person for a sum of Rs.1,91,18,472. The premises owned by such third person fitted with the Equipments installed by BBW, prior to its purchase by the assessee and its group concern, were given on rent by them to M/s Minerva Holding (P) Ltd. The purchase transaction of Equipments by the assessee from BBW took place on 1.4.2000. Even after the purchase of the Equipments and Building by the assessee and M/s Civic Traders (P.) Ltd. respectively, the hitherto tenant/user, namely, M/s. Minerva Holding (P) Ltd, continued to remain as the tenant on an annual rent of Rs. 94,17,060, splitted equally towards Building and Equipment, namely, Rs. 47,08,530 for each. Pursuant to the Agreement with BBW, the assessee was to pay Rs. 75.00 lac towards the price of Equipments and it simultaneously became entitled to recover rent for the three months period prior to its acquisition on 1.4.2000, that is, from 1.1.2000 to 31.3.2000 from Minerva Holding (P) Ltd, totaling Rs. 11.77 lac. After adjusting this amount of Rs. 11.77 lac against the sum of Rs. 75 lac paid to BBW, the assessee capitalized a sum of Rs. 63.22 lac towards this asset. Apart from that, a further sum of Rs.25.88 lac was incurred towards commission etc. on such Equipments and purchase price of a new Generator set etc., which was also capitalized by the assessee, thereby, making total cost of 'Equipments given on hire' at Rs.89,10,245. Depreciation was claimed by the assessee on such an amount. The Assessing Officer was not satisfied, inter alia, with the actual cost of Equipments shown to have been purchased by the assessee from BBW at a net consideration of Rs.63.22 lac. After conducting inquiries, which we will advert to a little later, he made a reference to the Addtl. CIT u/s 144A of the Act for determining the actual cost of such Equipments. Directions given u/s 144A was made as Annexure J to the assessment order. As per this Annexure, the Addtl. CIT noticed that the Building was owned by M/s Civic Traders Pvt. Ltd and the value of such Land and building in their books as on 31.3.2001, after depreciation, stood at Rs. 1.91 crore. He noticed that the ground floor of this property was with another sister concern, namely, M/s Sharda Exports and the remaining parts of the property were given on rent to M/s Minerva Holding (P) Ltd. It was also noticed that out of the total rent paid by M/s Minerva Holding, half of it was shown towards hire of Equipment (with purchase cost of Rs. 63.22 lac) and the remaining half towards hire of premises (with the proportionate purchase cost of Rs. 1.53 crore [1.91 crore*4/5] . It was thus held that it was a case of colourable device employed by the group companies to bifurcate rent between themselves. Since BBW failed to produce any proof of the purchase cost of the Equipments and the assessee also failed to discharge its burden in proving such purchase price as the actual cost, the Additional Commissioner estimated their actual cost at Rs. 20.00 lac. He, however, clarified that the AO was not bound by his opinion and may form his own. The AO adopted this figure of Rs. 20 lac and, then increased it with a sum of Rs. 2,45,000/- incurred towards purchase price of generator and sound proofing equipments. That is how, he computed the actual cost of such Equipments at Rs. 22,45,000/- and allowed depreciation thereon @ 25%, amounting to Rs. 5,61,250/-. The excess claim of depreciation at Rs. 16,66,311/- [Rs. 22,27,561/- (claimed by the assessee) minus Rs. 5,61,250/- (allowed by the AO)] was disallowed. The ld. CIT(A) came to hold that the AO was not justified in applying Explanation 3 to Section 43(1) of the Act inasmuch as the requirement under the provision is to determine the actual cost and not its fair market value. Ergo, he directed the AO to take the actual cost incurred by the assessee as actual cost.

4. The Revenue appealed before the Tribunal. The Tribunal in the original order considered the judgment of the Hon'ble Delhi High Court in CIT v. Dalmia Dadri Cement Ltd. (1980) 125 ITR 510/4 Taxman 523 and upheld the assessment order on this point. In deciding so, the Tribunal observed that depreciated value of these assets in the hands of BBW as on 31.3.2000 was only Rs.32,91,746/-. It further noticed that the assessee could adduce no justification for payment of such huge amount towards these Equipments, which were already put to use by BBW and stood depreciated to a reduced value in their books of account. It further noticed that building was purchased by the group concern of the assessee in which such facilities were installed and the occupier of the premises was to pay rent to the building owner at a specific rate and it did not matter to the occupier that in what manner the total rent paid by it was applied by the related parties, namely, the assessee and Civic Traders, towards rent of building and that of equipment. The Tribunal further noted that half of the total rent received was applied towards building and the remaining half towards these Equipments. In view of these facts, the Tribunal held that the rent received by the assessee for the Equipments was itself doubtful. Ex consequenti, the view taken by the ld. CIT(A) on this score was set aside that of the AO restored. Thereafter, the assessee moved application u/s 254(2) of the Act contending that the Tribunal erred in applying the judgment of Dalmia Dadri Cement Ltd. (supra) by treating it as that of the jurisdictional High Court, whereas the actual jurisdiction vested with the Hon'ble Allahabad High Court. In support of the contention that Explanation 3 to section 43(1) ought not to have been applied by the AO and resultantly, the disallowance was rightly deleted in the first appeal, the ld. AR relied on the judgment of the Hon'ble Allahabad High Court in the case ofJaswant Sugar Ltd. v. CIT [1973] Tax LR 1336. The Tribunal, vide its order dated 3.8.2012 passed u/s 254(2), held that non-consideration of the judgment of the Hon'ble jurisdictional High Court in Jaswant SugarLtd. (supra) and treating the judgment in case of Dalmia Dadri Cement Ltd.(supra) as that of the jurisdictional High Court, was a mistake apparent from record. That is how, the original order was recalled on this ground and the instant proceedings have now come up before us for a fresh decision on this aspect of the matter.

5. We have heard the rival submissions in the light of material placed on record and precedents relied. The main plank of the submissions advanced on behalf of the assessee before us was that the AO was not justified in reducing the actual cost of the Equipments by resorting to the provisions to Explanation 3 to section 43(1). This view was sought to be buttressed by relying on the judgment of the Hon'ble jurisdictional High Court inJaswant Sugar Mills Ltd. (supra). Drawing strength from this judgment, the ld. AR vehemently argued that the AO erred in applying Explanation 3 to section 43(1) which, in the facts and circumstances of the case, was not applicable because of the failure of the AO to record any satisfaction that the main purpose of transfer of such assets to the assessee was the reduction of liability of income-tax. This argument was countered by the ld. DR on the preliminary issue by contending that the judgment in Jaswant Sugar Mills Ltd. (supra) was rendered in the context of Income-tax Act, 1922 and, hence, the same cannot be applied in so far as the provisions of the Incomer-tax Act, 1961, currently in force, are concerned.

6. Before considering the factual scenario of the case and whether or not the ratio decidendi of the judgment in Jaswant Sugar Mills Ltd. (supra) is applicable to the instant case on merits, we would like to deal with the preliminary argument raised by the ld. DR about the inapplicability of this judgment due to the same having been rendered under the 1922 Act. It goes without saying that if the language of a provision contained in the earlier and the current Acts is same, then the decisions rendered in the context of the earlier Act do not lose their binding force and vice versa. Thus, it becomes imperative to make a comparative analysis of the corresponding provisions of the former and the current Acts for ascertaining if the language is different or similar.
7. In this regard, it is observed that section 10 of the Income-tax Act, 1922 deals with the determination of income under the head 'Profits and gains of business, profession or vocation', which is similar to Chapter IV-D of the Income-tax Act, 1961 Act dealing with the computation of income under the head 'Profits and gains of business or profession'. Clause (vi) of section 10(2) of the 1922 Act provides for allowing depreciation. Clause (a) of sub-section (5) of section 10 of the 1922 Act deals with the determination of 'actual cost.' This provision runs as under:—

"(a) in the case of assets acquired in the previous year, the actual cost to the assessee:

Provided that 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 and the Income-tax 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 Income-tax Officer may, with the previous approval of the Inspecting Assistant Commissioner, determine having regard to all the circumstances of the case:"

8. The corresponding provision for the determination of 'actual cost' has been enshrined in section 43 of the 1961 Act, the relevant part of which is as under:—

'Section 43(1) : "actual cost" to mean '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 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 Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case.'

9. On a conjoint reading of the provisions of the 1922 Act and 1961 Act in this regard, it can be seen that sub-section (1) of section 43 defining 'actual cost' is worded more or less on the same lines as section 10(5)(a) of the 1922 Act, except providing for reducing that portion of cost, if any, as has been met directly or indirectly by any other person or authority. Extantly, we are not dealing with any issue about the deductibility or otherwise of any portion of cost which has been met directly or indirectly by any other person or authority. We are concerned with the determination of 'actual cost' of an asset, which was earlier used by a previous owner for the purpose of his business. This issue is covered by Explanation 2 to section 43(1) of the 1961 Act and proviso to section 10(5)(a) of the 1922 Act. A cursory look at the language of both these provisions divulges that except for change in the designation of the authorities, which are the AO and Jt. Commissioner under the current Act, they are identical. Once the language of the provision in both the Acts is found to be similar, there can be no impediment in considering the decisions given under the 1922 Act while interpreting the analogous provisions of the 1961 Act. We, therefore, refuse to accept this contention advanced on behalf of the ld. DR.

10. Now, let us proceed to see if the ratio laid down by the Hon'ble Allahabad High Court in the case of Jaswant Sugar Mills (supra) is applicable to the facts of the present case. The assessee in that case purchased machinery at a cost of Rs.1,26,040/- from Seth Banarsi Das, who was using it at Bijnor Sugar Mills. The exact cost of this machinery to Seth Banarsi Das was not known, but, it was estimated that when the machinery was purchased in 1948 it must have cost about Rs.90,000/-. The assessee purchased such machinery during the previous year relevant to the assessment year 1954-55 for a stated consideration of Rs.1,26,040/-. The Income-tax Officer, with the approval of the Inspecting Assistant Commissioner, took recourse to the proviso to section 10(5)(a) and accordingly reduced the actual cost of such machinery to Rs.1 lac. When the matter finally went before the Hon'ble Allahabad High Court, their Lordships noticed that the Income-tax Officer had not recorded any reasons disclosing the grounds on which he was satisfied that the transfer was for reducing tax liability. It was held that the Income-tax Officer must record an objective satisfaction before using this provision. As there was nothing on record to show that the ITO was so satisfied nor there was any material which could show the reaching of satisfaction by the Income-tax Officer in terms of section 10(5)(a), the Hon'ble High Court held that the Tribunal erred in holding that the requirement of section 10(5)(a) was fulfilled on account of the fact that the Inspecting Assistant Commissioner had granted approval. It was eventually laid down by the Hon'ble High Court vide its judgment dated 15.12.1972 that the assessee was entitled to depreciation on the actual cost of the machinery purchased from Seth Banarsi Dass and proviso to section 10(5)(a) was not applicable.

11. At this juncture, it would be befitting to take note of the judgment dated 31st July, 1972 rendered by the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd. v. CIT[1972] 85 ITR 599. The assessee in that case purchased colliery lands, hereditaments and premises, mines, minerals, powers and privileges and all other hereditaments together with the machinery belonging to a company for a consideration of Rs.6 lac. The total consideration was bifurcated in three parts, namely, Rs.3,50,000/- for machinery and other moveable properties ; Rs.1,50,000/- for building and structures, and ; Rs.1 lac for the rest of properties not capable of being passed by delivery. From the assessment year 1946-47, the assessee started claiming depreciation on the assets so purchased on the basis of their written down value as per the record of the vendor company and not the above bifurcated value, which was allowed by the ITO. It went on till the assessment year 1952-53 when, again, the ITO allowed depreciation on the old basis. Before the AAC, the assessee raised a ground that the ITO should have worked out depreciation on the value of assets based on the above bifurcation of Rs.6 lac. This contention was negatived by the ITO, who noticed that the vendor had been making good profits, but, no provision was made for the goodwill of the company in the above bifurcation of Rs.6 lac in three categories. The ITO opined that if such provision had been made, the value of goodwill would have worked out at Rs.2,56,960/- and the remaining amount of Rs.3,43,040/- (Rs.6,00,000-Rs.2,59,256/-) towards other assets. The Tribunal took note of the fact that the figures of Rs.3,50,000/-, Rs.1,50,000/- and Rs.1,00,000/- were arbitrarily put and there was no understandable break-up of the valuation. The assessee contended before the Hon'ble High Court that the ITO was not competent to go beyond the agreed price and fix a valuation of the assets on his own. The High Court rejected the assessee's contention. When the matter finally went before the Hon'ble Supreme Court, their Lordships took into account the provisions of section 10(2) and also 10(5) of the 1922 Act defining the original cost. After taking note of the provisions of section 10(5) of the 1922 Act, the Hon'ble Supreme Court held as under:—

"Keeping in view sub-s. (5) of s. 10 of the Act the original actual cost to the assessee of the asset with regard to which depreciation allowance is claimed has to be ascertained for the purpose, inter alia, of finding out the written down value in case of assets other than ocean going ships. …… The original cost of a particular asset is a question of fact which has to be determined on the evidence of the material produced or available to the IT authorities. Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by an assessee would be a piece of evidence and, prima facie, the statements or figures given therein would show how much the cost of the asset to the assessee is. But, if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value for ulterior purposes it is open to the IT authorities to refuse to accept the price mentioned in the deed or alleged by the assessee and to ascertain what the actual original cost was……"

12. It is evident from the above observations of the Hon'ble Summit Court rendered in the context of section 10(5) of the 1922 Act that the original cost of an asset should ordinarily be determined on the basis of the documents showing the cost paid for purchase of such asset. But, if the apparent circumstances suggest that the real position is different and the price has been inflated or deflated for an ulterior motive, then it is open to the income-tax authorities to disregard the apparent value and ascertain the correct actual cost. Ergo, it is discernible that the Hon'ble Apex Court dealing, inter alia, with the interpretation of section 10(5) of the 1922 Act has clearly laid down that the ITO should not desist from determining the actual cost of an asset, if the circumstances show that some fictitious price was put by the parties on the assets with a deceitful intention. The Hon'ble Supreme Court disregarded the apparent price assigned to the assets for the purposes of grant of depreciation and consequently upheld the grant of depreciation to the vendee by treating its actual cost equal to the written down value of such assets in the hands of the vendor prior to the date of sale.

13. It is pertinent to note that whereas the judgment of the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd.(supra) is dated 31st July, 1972, the judgment of the Hon'ble Allahabad High Court in Jaswant Sugar Mill (supra) is dated 15.12.1972. There is no reference to the judgment of the Hon'ble Supreme Court in the judgment of the Hon'ble High Court, which is otherwise on the interpretation of the same section and directly relevant on the point. It appears that the parties failed to bring the Hon'ble Apex Court judgment to the notice of the Hon'ble High Court, which resulted in rendering the decision without considering the ratio decidendi laid down by the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd. (supra). There is hardly any need to accentuate that the wisdom of a superior court gets precedence and when the superior court is none other than the Hon'ble Supreme Court, its judgments have a binding force across the length and breadth of India. Article 141 of the Constitution of India unequivocally states that : 'The law declared by the Supreme Court shall be binding on all courts within the territory of India.'

14. At this stage, it will be significant to refer to the judgment of the Hon'ble Delhi High Court in Dalmia Dadri Cement Ltd.(supra). In that case, a sum of Rs. 16,46,617 was capitalized as cost of plant and machinery installed during the year which included a sum of Rs. 7,70,000 paid to Bhagwati Glass. It was noticed that the cost of assets got fabricated by Bhagwati Glass was Rs.3.00 lac and odd. Accordingly, the AO came to hold that the cost of assets was inflated. He reduced the actual cost of such assets in terms of Explanation 3 to section 43(1) of the Act, which led to the reduction in the amount of depreciation. When the matter finally came up for consideration before the Hon'ble High Court, it was noticed that total expenses incurred by Bhagwati Glass on the asset transferred were to the tune of Rs. 3,11,954, against which the assessee showed to have paid a sum of Rs. 7,70,000. It was held that the income-tax authorities were right in observing that the capital cost was undoubtedly inflated in the hands of the assessee to enable it to claim higher depreciation and thus ultimately substituting their own figure of actual cost. Here it is relevant to mention that in reaching this conclusion under the provisions of the 1961 Act, their Lordships also referred to the judgment of the Hon'ble Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. (supra) rendered in the context of the analogous provision of the 1922 Act. It is further noticed that similar view has been taken by the Hon'ble Calcutta High Court in the case of Jogta Coal Co. Ltd. v. CIT[1965] 55 ITR 89 laying down that if the circumstances show that an assessee has arranged to put a fictitious price on his assets in a contract or conveyance, it is open to the income-tax authorities to refuse to accept that price and go behind the contract or conveyance.

15. On an overview of all the above discussed judgments led by that of the Hon'ble Supreme Court in Guzdar Kajora Coal Mines Ltd. (supra) in the context of the point under consideration, it clearly emerges that when asset before the acquisition by the assessee was used by another person for his business and the AO holds the view and is satisfied that the actual price of such asset has been inflated or deflated for an ulterior purpose, then there can be no fetters on the powers of the AO in rejecting such declared price and determining the correct actual cost.

16. Reverting to the facts of the instant case, we find that during the course of assessment proceedings, the Assessing Officer noticed that the tax auditor in his report had given the details of 'Equipments given on rent' as under : —

17. It was noticed by the AO that the details of such assets were mutilated by someone to divert his attention. On being pointed out, the assessee filed fresh details, inter alia, of purchase price of Centrally Air-conditioning unit with Generator, Otis elevator and Fire fighting equipments acquired from BBW for a gross sum of Rs.75,00,000. The assessee further claimed to have paid commission of Rs.10 lac and Rs.8 lac to M/s Shivaya Laminations Ltd. and M/s Light Carts Pvt. Ltd., respectively for the above transaction of purchase of Equipments. The AO on making investigation found such commission payment to be not proper. He, therefore, refused to accept such amounts as part of the cost of asset. It is a matter of record that the Tribunal vide its original order, has restored this matter to the file of AO for a fresh determination. In the instant proceedings, we are not concerned with anything other than the amount paid by the assessee to BBW towards the purchase of 'Equipments given on hire'. Hence we are desisting from commenting on the genuineness or otherwise of such commission payments. To test the veracity of purchase price of Equipments, the AO recorded the statement of Sh. Neeraj Kumar, an accountant of BBW. On being asked to show the basis of determination of Rs.75.00 lac as the price of the Equipments, he stated that it represented their market price with labour and installation charges, but no further detail was submitted. During the course of assessment proceedings, the AO required the assessee to produce the proof of purchase cost of the Equipment to BBW at Rs.75.00 lac, but, again no evidence in this respect was filed even by the assessee. It was only during the course of first appellate proceedings, that the assessee came out with the basis of determining the actual cost of Equipments at Rs.75 lac, detailed as under:—

PLUS:

18. It is manifest from the order of the ld. CIT(A) that he simply took on record the above details from the assessee and proceeded to delete the disallowance without any independent appraisal. We will evaluate the authenticity of the above details furnished by the assessee. It can be seen that purchase price of Equipments by BBW has been shown at Rs.39.26 lac, which is based on bills. There should not be any problem in accepting it as correct. Cost of installation, civil work and ducting, etc. has been shown at Rs.20 lac. The claim in this regard is that cost of installation etc. is a little more than 50% of the cost of Equipments itself, which prima facie does not appear probable. There is no corroboration of this figure. What was spent by BBW on installation has also not been shown anywhere. Next item is Cost of approval etc. at Rs.10.00 lac. Which Government department charges fee of Rs.10.00 lac for granting approval to install AC and lift etc. at one's own premises, is beyond our comprehension. This is not only highly improbable but ridiculous. That appears to be the reason for not supporting such a claim with any evidence worth the name. The next item claimed to have been forming cost of Equipments is a sum of Rs.5,73,000/- given as profit to BBW. It is axiomatic that the Equipments were purchased by BBW prior to September, 1999 because these were given on rent from 1st September, 1999. It shows that such Equipments were purchased and commercially exploited by BBW for at least three months, earning rent of Rs.11.77 lac from their hiring, before transferring them to the assessee. It defies all the logics that any Equipment commercially exploited for at least three months by giving it on hire, after purchase, would fetch the same price at which it was acquired. What to talk of transferring the Equipments at cost price, the assessee has made out a case of paying premium of Rs.5.73 lac to BBW, which proposition is absolutely unsustainable. Here is a case in which the written down value of such Equipments in the hands of BBW was Rs.32,91,746/- and the assessee is claiming to have paid a whopping price of Rs.75 lac. The Tribunal, being a final fact finding authority, cannot act as a mute spectator to the designs of the parties in arranging their affairs in such a manner so as to scuttle the legitimate tax due to the exchequer. A thing which can be seen with a naked eye, cannot be lost sight of on some unrealistic reasoning. We are confronted with a situation in which the assessee needlessly tried to establish that the gross actual cost of 'Equipments given on hire' was Rs.75 lac, which in our considered opinion has been rightly refused by the AO after making a detailed discussion and conducting due inquiries from BBW and other related parties. It is not a case in which the AO has arbitrarily formed a view that the purchase price of the Equipments was declared higher and simply ignored it without any bedrock. Rather, he took pains in establishing that the case of the assessee was caught within the mischief of Expl. 3 to section 43(1). The afore elaborated exercise done by the AO, before rejecting the declared price of the Equipments as not its actual cost, reveal nothing less than recording of an objective satisfaction in terms of the Explanation 3. It is not necessary that before invoking Expl. 3 to section 43(1), the AO must make an express mention in the assessment order that he was not satisfied with the declared cost. If the exercise done by the AO before rejecting the assessee's version of actual cost, vividly reflects his implied satisfaction in terms of the Expl. 3 to section 43(1), then such implied satisfaction prompted by express actions, cannot be taken as a case of absence of satisfaction. The facts of the instant case amply show that the AO was fully satisfied in not accepting the declared price as the actual cost of Equipments from BBW within the meaning of the Explanation 3 to section 43(1). The order passed by the ld. CIT(A) in holding otherwise, is, therefore, overturned.

19. Having held that the AO was right in taking recourse to the provisions of Explanation 3 to section 43(1) by holding that the main purpose of the transfer of Equipments to the assessee was the reduction of a liability to income-tax by claiming depreciation with reference to an enhanced cost, the next question is to decide the correctness of the amount substituted as actual cost. It is self evident that the AO, after rejecting the assessee's claim, cannot arbitrarily assign any value as per his ipse dixit. He is supposed to be guided by some sound principles in determining the actual cost. The facts of the instant case transpire that the assessee capitalized actual cost of Equipments purchased from BBW at a net of Rs.63.22 lac, which has been held by us above to be unacceptable. The AO determined the actual cost of such Equipments at Rs.20 lac, which is again devoid of rationality and is not more than an ad hocism. In our considered opinion, a realistic estimate of actual cost in the hands of a buyer, in the absence of any special characteristics of the asset transferred, can be made by taking into consideration the written down value of such asset in the hands of the vendor at the time of its transfer. No such special characteristics of the Equipments purchased by the assessee from BBW, warranting premium on their transfer, do exist or have been brought to our notice by the ld. AR. The written down value of such Equipments in the hands of BBW at the time of sale to the assessee stood at Rs. 32.91 lac. No details of Installation charges etc. incurred by BBW has been made available. In our considered opinion, the ends of justice would meet adequately, if the total actual cost of such Equipments purchased from BBW is taken at Rs.35.00 lac on all inclusive basis. The impugned order on this score is set aside and the AO is directed to allow depreciation by considering Rs.35.00 lac as the actual cost of Equipments purchased from BBW as against his estimate of Rs.20.00 lac. This ground is disposed of accordingly.

20. In the result, the appeal is partly allowed for statistical purposes.