Section 263 revision fails where the Assessing Officer adopts a plausible view on goodwill depreciation and business expenditure.
Section 263 revision cannot be sustained where the Assessing Officer has taken a plausible view after examining the material. On depreciation of goodwill arising from a slump sale/business transfer, the revisional authority proceeded on an incorrect assumption that amalgamation provisions applied, while the assessment records showed enquiry into the valuation and depreciation claim; the revision was therefore not justified. On professional, valuation, legal, structuring and consultancy fees, the expenditure was treated as revenue in nature and the record showed consideration by the Assessing Officer, so mere disagreement or a brief objection did not establish lack of enquiry. The revisional order was quashed.
Issues: (i) Whether the revision under section 263 of the Income-tax Act, 1961 could be sustained on the ground that depreciation on goodwill arising from a slump sale/business transfer was wrongly allowed. (ii) Whether the revision under section 263 of the Income-tax Act, 1961 could be sustained on the ground that professional, valuation, legal, structuring and consultancy fees were capital in nature and were allowed without proper verification.
Issue (i): Whether the revision under section 263 of the Income-tax Act, 1961 could be sustained on the ground that depreciation on goodwill arising from a slump sale/business transfer was wrongly allowed.
Analysis: The business was acquired under a business transfer agreement on slump sale terms, not by amalgamation. The revisionary order proceeded on the mistaken premise that amalgamation provisions governed the transaction. The assessment records also showed that the Assessing Officer had examined the valuation material and the depreciation claim. Where the Assessing Officer adopts one of two possible views on allowance of depreciation on goodwill in such a transaction, the order cannot be treated as erroneous merely because the revisional authority prefers a different view.
Conclusion: The revision on this issue was not sustainable and was liable to be set aside in favour of the assessee.
Issue (ii): Whether the revision under section 263 of the Income-tax Act, 1961 could be sustained on the ground that professional, valuation, legal, structuring and consultancy fees were capital in nature and were allowed without proper verification.
Analysis: The expenditure was incurred in connection with acquisition and reorganisation of business and was supported by the business purpose of facilitating the assessee's operations. The material on record showed that the Assessing Officer had considered the claim, and the revisional order recorded only a brief objection without demonstrating how the allowance was unsustainable. On the facts, the expenditure was treated as revenue in nature and the view taken by the Assessing Officer could not be branded as a lack of enquiry warranting revision.
Conclusion: The revision on this issue was also not sustainable and was liable to be set aside in favour of the assessee.
Final Conclusion: The revisional order was quashed and the assessee's appeal succeeded.
Ratio Decidendi: Section 263 cannot be invoked where the Assessing Officer has taken a plausible view after examination of the material, and a revisionary authority cannot sustain interference by proceeding on an incorrect assumption about the applicable transaction regime.