Tribunal allows assessee's appeal, sets aside Pr.CIT's orders under Section 263, restores original assessment.

The Tribunal allowed the appeals filed by the assessee for A.Y. 2014-15 and A.Y. 2015-16. The orders passed by the Pr.CIT under Section 263 were set aside, restoring the original assessment orders by the AO. The Tribunal held that the AO had conducted adequate inquiries and had taken a possible and reasonable view in accepting the assessee's claim for depreciation on goodwill. The Pr.CIT exceeded his jurisdiction under Section 263 by revising the AO's orders.

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Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (Pr.CIT) exercising revisional jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Entitlement of the assessee to claim depreciation on goodwill arising out of amalgamation under Section 32 of the Income Tax Act, 1961.
3. Whether the Assessing Officer (AO) conducted adequate inquiries regarding the assessee's claim for depreciation on goodwill.

Detailed Analysis:

1. Validity of the Pr.CIT Exercising Revisional Jurisdiction Under Section 263:

The appeals were filed by the assessee against the orders passed under Section 263 of the Income Tax Act, 1961 by the Pr.CIT. The Pr.CIT had set aside the assessment orders for A.Y. 2014-15 and A.Y. 2015-16 on the grounds that the AO had failed to conduct an in-depth inquiry into the assessee's claim of depreciation on goodwill. The Pr.CIT deemed the AO's orders erroneous and prejudicial to the interests of the revenue.

The assessee contended that the AO had indeed examined the claim for depreciation on goodwill during the assessment proceedings and had accepted it after necessary deliberations. Therefore, the Pr.CIT's exercise of revisional jurisdiction under Section 263 was not warranted. The assessee relied on judgments from the Supreme Court and High Courts to support the argument that a possible view taken by the AO could not be revised by the Pr.CIT under Section 263.

2. Entitlement to Claim Depreciation on Goodwill:

The assessee claimed depreciation on goodwill arising from the amalgamation of M/s Premier Finance and Trading Company Limited with the assessee company. The Pr.CIT argued that the introduction of goodwill and the claim for depreciation on it violated 'Proviso 5' of Section 32(1). However, the assessee contended that the claim was in conformity with the Supreme Court's judgment in CIT, Kolkata Vs. Smifs Securities Limited, which recognized goodwill as an asset eligible for depreciation under 'Explanation 3(b)' to Section 32(1).

The Tribunal found that the assessee's claim for depreciation on goodwill was valid and aligned with the Supreme Court's ruling in Smifs Securities Limited. The excess consideration paid over the value of net assets acquired in the amalgamation was considered as goodwill, and the assessee was entitled to claim depreciation on it.

3. Adequacy of Inquiry by the AO:

The Tribunal examined whether the AO had conducted adequate inquiries regarding the assessee's claim for depreciation on goodwill. It was noted that the AO had issued a notice to the assessee, requiring justification for the claim and details about the amalgamation. The AO had accepted the claim after necessary deliberations.

The Tribunal concluded that the AO had conducted a proper inquiry and had taken a possible and reasonable view. Therefore, the Pr.CIT's jurisdiction under Section 263 to revise the AO's order was ousted. The Tribunal emphasized that a possible view taken by the AO after necessary deliberations could not be dislodged by the Pr.CIT under Section 263.

Conclusion:

The Tribunal allowed the appeals filed by the assessee for both A.Y. 2014-15 and A.Y. 2015-16. The orders passed by the Pr.CIT under Section 263 were set aside, and the original assessment orders passed by the AO were restored. The Tribunal held that the AO had conducted adequate inquiries and had taken a possible and reasonable view in accepting the assessee's claim for depreciation on goodwill. The Pr.CIT had exceeded his jurisdiction under Section 263 by revising the AO's orders.

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