Tribunal Upholds Depreciation on Goodwill, Rejects PCIT's Jurisdiction Assumption

The Tribunal held that the assessment order allowing depreciation on goodwill was not erroneous or prejudicial to the Revenue. The Principal Commissioner's assumption of jurisdiction under section 263 was deemed incorrect as the 5th proviso to section 32(1) was not applicable in this case. The Tribunal quashed the PCIT's order and upheld the appeal, affirming the assessment order's validity and the allowance of depreciation on goodwill.

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Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Applicability of the 5th proviso to section 32(1) of the Income Tax Act.
3. Validity of the assessment order passed by the Assessing Officer.
4. Depreciation on goodwill arising from amalgamation.
5. Principles of natural justice and opportunity to be heard.

Detailed Analysis:

1. Jurisdiction under section 263 of the Income Tax Act:
The Principal Commissioner of Income Tax (PCIT) assumed jurisdiction under section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO) on 29.12.2017. The PCIT issued a show cause notice, asserting that the AO's order was erroneous and prejudicial to the interests of the Revenue, primarily because the AO allowed depreciation on goodwill without considering the 5th proviso to section 32(1) of the Act.

2. Applicability of the 5th proviso to section 32(1) of the Income Tax Act:
The PCIT contended that the 5th proviso to section 32(1) restricts the claim of depreciation to the successor company on amalgamation. The PCIT argued that the AO failed to apply this provision correctly, rendering the assessment order erroneous. The assessee, however, argued that the 5th proviso was not applicable as the goodwill arose from the amalgamation and was not an existing asset in the books of the amalgamating company. The assessee also cited judicial precedents to support its claim.

3. Validity of the assessment order passed by the Assessing Officer:
The assessee contended that the AO had conducted a proper inquiry and applied his mind before allowing the depreciation on goodwill. The assessee argued that the AO's decision was one of the possible views and thus could not be considered erroneous or unsustainable in law. The Tribunal agreed with the assessee, stating that the AO's view was a possible one and that the PCIT could not assume jurisdiction under section 263 merely because he disagreed with the AO's view.

4. Depreciation on goodwill arising from amalgamation:
The Tribunal examined the facts and found that the goodwill was not an existing asset in the books of the amalgamating company but arose due to the amalgamation. The Tribunal cited the decision of the Hon'ble Supreme Court in the case of M/s. Smifs Securities Ltd., which held that goodwill arising on amalgamation is entitled to depreciation under section 32(1). The Tribunal also referred to other judicial precedents that supported the assessee's claim for depreciation on goodwill.

5. Principles of natural justice and opportunity to be heard:
The assessee argued that the PCIT failed to provide a proper opportunity to present its case, thereby violating the principles of natural justice. The Tribunal noted that the PCIT's order was based on a wrong assumption of facts and incorrect application of law, and thus, the revision under section 263 was invalid.

Conclusion:
The Tribunal concluded that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT's assumption of jurisdiction under section 263 was based on an incorrect application of the 5th proviso to section 32(1). The Tribunal quashed the PCIT's order and allowed the appeal filed by the assessee. The assessment order dated 29.12.2017, allowing depreciation on goodwill, was upheld.

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