TaxTMI 
TaxTMI 
2012 (10) TMI 708
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.... and Institutional catering filed its return of income on 12.12.2006 for income of Rs. 36.06 Crores. In the assessment completed u/s. 143(3) r.w.s.144C (13)of the Act income of the assessee was determined at Rs.44.07 Crores after making addition of Rs. 7.78 Crores on account of disallowance of depreciation on goodwill. The question of goodwill arose for the first time in the AY 2003-2004 and disallowance made for that AY has direct impact on the proceedings for the year under consideration. So, we would like to discuss facts of that AY also. 2.1. In that AY return of income was filed on 27.11.2003 declaring loss of Rs. 10.91 Crores. In the computation of total income, the assessee had claimed depreciation of Rs. 18,43,62,335/- on goodwill of Rs. 73,74,49,343/- @ 25%. AO disallowed the claim made by the assesee on the ground that the provisions of section 32(1) did not include goodwill. First Appellate Authority (FAA) vide his order No. CIT(A)-XXXIII-Rg.2(3)/IT/44-T/06-07 dated 29.12.2006 upheld the order of the AO. Aggrieved by the FAA's order, the assessee preferred an appeal before the ITAT (ITA No. 2844/Mum/2007). Before the ITAT, assessee furnished a valuation report dated 2....
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....the catering business of Indian Hotels Co. Ltd.,(IHCL) a joint venture between IHCL and Singapore Air Terminus Services Ltd.(SATS) vide business transfer agreement (BTA) dated 25.09.01, that the contracts for acquiring the various assets were available to the assessee at the time of making the original valuation, including that of goodwill, that the said contracts were included in the original valuation, that the assessee had valued various assets including goodwill at Rs. 73.74 Crores as on 01.04.2002. He held that the assessee had not brought in any other assets at the time of acquiring the business, that the assessee did not bring in any other assets in the said value during the course of assessment proceedings also, that it was not argued before him that various intangible assets were included in the value of Rs.73.74 crores, that any such argument was not advanced before the FAA during the course of appellate proceedings. He found from the valuation report that valuers had valued intangible assets as under: i.) Right to use Taj brand name(Rs.30.08 Crores), ii) Corporate procurement agreement with IHCL(9.5 Crores), iii) Operating Agreement with TMFK (3.2 Crores), iv....
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....ppellate proceedings before the Hon'ble ITAT, the assesse has suddenly realized that there were intangible assets that were included in the value of Rs. 73.74 crores which was loosely grouped as 'goodwill". 4.2 On the same day i.e.,on 26-10-2010, AO passed order for the A.Y. 2006-07 also. Assessee preferred an appeal before the FAA for the A.Y. 2003-04, whereas appeal for AY 2006-07 was filed before the Tribunal as the order was passed in pursuance of the directions of DRP, Mumbai. 5. Deciding the appeal for the A.Y. 2006-07, Tribunal extensively discussed the order of the AO and held as under : In grounds of appeal No.3, the assessee has challenged the order of the AO in not allowing the claim of depreciation of Rs. 7,77,77,860/- on various intangible assets grouped under the head 'Goodwill'. 5.1 Facts of the case, in brief are that the assessee has claimed depreciation of Rs. 17,91,79,623/- u/s. 32 read with I.T. Rules, 1962. From the working of the depreciation chart filed by the assessee, the AO noted that the assessee has claimed depreciation of Rs. 7,77,77,860/- on goodwill. The AO observed that during the Assessment Year 2005- 06, the AO in the order passed u/s. ....
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.... section 32 although the same is not specifically defined in the Act or in the rules. 5.3 However, the AO was not convinced with the explanation given by the assessee. He observed that the tax auditors in the tax audit report dated 28-10-2005 without any qualification has not considered depreciation on goodwill as allowable deduction. According to the AO when any business is taken over as a going concern, it includes taking over of all assets and liabilities including the various commercial rights and licenses. The consideration is not paid independently for each asset or liability. The assessee also has not paid separately for any other intangible right or for non-compete fees or for acquiring any technical know-how. The consideration so paid by the assessee does not include acquisition of any goodwill already existing in the books of IHCL. The licenses and commercial rights so acquired as a going business concern are incidental to the business of the assessee i.e., Air Catering and Institutional Catering Referring to the various decisions cited before him, the AO observed that it is a debatable subject whether goodwill is an intangible asset or whether acquisition of commercia....
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....enture between Indian Hotels Company Ltd., and Singapore Air Terminus Services Limited vide business transfer agreement dated 25-09-2001. The contracts for acquiring the various assets were available to the assessee at the time of making original valuation, including that of goodwill. The said contracts were included in the original valuation. The assessee has valued various assets including goodwill which was valued at Rs. 73,74,49,345/- as on 01-04-2002. The assessee did not bring in any other assets in the value of Rs. 73.74 crores at the time of acquiring the business. The assessee did not bring in any other assets in the said value during the course of assessment proceedings nor it was argued before the AO that various intangible assets were included in the value of Rs. 73.74 crores. No such arguments were advanced before the CIT(A) during the course of appellate proceedings. It was only when the CIT(A) upheld the order of the AO on this ground that the assessee suddenly realized that there were intangible assets that were included in the value of Rs. 73.74 crores which was loosely grouped as 'goodwill' and filed the valuation report before the Tribunal. This clearly shows ....
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.....9 So far as the bifurcation of various items i.e. intangible assets which according to the ld. A.R. were loosely worded as "goodwill" in the earlier agreement, we find the assessee furnished the valuation report of the valuers after 8 years of the business transfer agreement. Even the valuers in the said valuation report has mentioned that they are preparing the same at the instance of the assessee and on the basis of the material provided to them by the assessee. They have not done any independent enquiry. The relevant portion of the disclaimer by the valuer at pages 18 & 19 of the valuation report (Page 87 & 88 of the paper book) reads as under :- "In the course of the valuation, E&Y were provided with both written and verbal information, including market, technical, financial and operating data. We have however, evaluated the information provided to us by the Company through broad inquiry, analysis and review (but have not carried out a due diligence or audit of the Company for the purpose of this engagement, nor have we independently investigated or otherwise verified the data provided). Through the above evaluation, nothing has come to our attention to indicate that the in....
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....the accounts. Therefore, no responsibility is assumed for matters of a legal nature." 5.10 From the above it is clear that the valuation done by the valuers was at the instance of the assessee company with no obligation and responsibility on their part and its preparation after a gap of eight years and that too after the order passed by the CIT(A) rejecting the claim of depreciation on goodwill clearly an after thought as observed by the A.O. Further depreciation can be claimed on assets appearing in the balance sheet on which depreciation was allowed in the past. It is a fact that no depreciation was claimed or allowed on intangible assets in the preceding years. The assessee had claimed depreciation only on goodwill in the assessment year 2003-04 and onwards which was denied by the A.O. Therefore, when depreciation has neither been claimed nor allowed on intangible assets in the preceding years the assessee, in our opinion, cannot be allowed to claim depreciation on intangible assets in the impugned assessment year. In this view of the matter we uphold the order of the AO in disallowing depreciation on goodwill and other intangible assets. We also uphold his order in rejecting....
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....arising out of tax disputes should be rectified as soon as possible. Perpetuating mistakes was never considered bravery in tax related matters. Perhaps, because of that understanding rectification provisions found place in the Act XXII of 1860 also-Sub sections 2-5 of Sec. LVI of the said Act were about correcting the mistakes of assessment. Section 35 of the 1922 the Indian Income-tax, Act was prelude to present rectification provisions of tax statutes (Sec.154,254(2) of IT Act, Sec.34 of GT Act,Sec.35 of WT Act). Rectification of an order stems from the fundamental principle that justice is above all. 6.2 Not only AO.s, but appellate authorities also have been conferred with rectification powers by present tax-laws. Although Order XLVII, Rule 1 of Civil Procedure Code (CPC) also provides for rectification of mistakes, but scope of CPC is narrower than the Taxation Acts. Provisions of CPC talk of rectification of mistake apparent on the face of record, whereas taxation laws are about rectification of mistakes apparent from record. Mistake apparent from record means a mistake that can be decided without taking help of external sources. A patent, manifest and self-evident error w....
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....mited. It is restricted to rectification of mistakes apparent from the record. Power to recall an order is prescribed in terms of rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, and that too only in cases where the assessee shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex parte. vii). In the absence of any specific power conferred by the statute or inferred by implication, the Tribunal which has been constituted under the Act, cannot exercise any power of review. No such power can be inferred by implication nor is there any specific provision, including Sec. 254(2), in the Act providing for review. viii). The Tribunal, while exercising the power of rectification u/s. 254(2) of the Act, can recall its order in entirety if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal's mistake, error or omission and which error is a 'manifest error'. 6.3 Now, we would like to discuss the issue under consideration and the cases relied upon by the AR. In the present case Tribunal had admitted additional evidences and had sent them to the AO for passing an order after con....
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....ve referred section says that whenever, a prima facie case is made before the Tribunal that certain documents/affidavit will be useful for deciding an issue argued before it, Tribunal may admit the same or it may direct the lower authorities to examine the documents/affidavit. Direction of the Tribunal to the FAA/AO in this regard is a neutral action. By sending the additional evidence to lower authorities, Tribunal wants them to go through them thoroughly and to arrive at a conclusion in light of the fresh evidence. We are of the opinion that order admitting additional evidence is not an order of binding nature and does not act as precedent. Final order, passed by the Tribunal after appreciating the additional evidences/affidavit, decides the issue argued before it and such an order works as precedent. While admitting additional evidences Tribunal had observed that evidences produced by the assessee were of the nature that went into the root of the matter for the purpose of arriving at a decision as to whether the assessee was entitled for deduction u/s 32(1)(ii) of the Act and if so, the quantum of depreciation that it was entitled to. After admitting the additional evidence T....
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....th passing an effective and substantive final order. Secondly, while passing the order E Bench did not ignore the order admitting the additional evidence-rather it is very much part of the order. In these circumstances, we are of the opinion that order of the E Bench of the Tribunal (supra) cannot be rectified u/s.254(2) of the Act. Full Bench of Hon'ble Delhi HC has analysed the matter of Honda in the case of Lachman Dass Bhatia Hingwala (P.) Ltd.(330ITR243) as under : "In Honda Siel Power Products Ltd. [2007] 293 ITR 132 (Delhi) the High Court considered the contention that the recall of the Tribunal's entire decision was prohibited on the basis that in the garb of rectification, the order cannot be recalled. The application for rectification was filed as the Tribunal had not taken note of a binding precedent though it was cited before the Tribunal. In that factual background, the Supreme Court held that the power of rectification has been conferred on the Tribunal to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record and that atonement to the wronged party by the court or the Tribunal for....
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....all the order and decide the case afresh or to decide that issue after affording an opportunity to the parties concerned and pass a fresh order in the light of finding on such issue. The order under section 254(2) of the Income-tax Act, 1961, is not confined to arithmetical or clerical mistakes, nor only to correct substantive mistakes but also procedural mistakes." In our opinion the facts of the present case are clearly distinguishable from the case of Ramesh Chand Modi (supra). In that case ground of appeal taken was not considered by the Tribunal. In order to undo the injustice, Tribunal passed rectification order. In our opinion case of Ramesh Chand is of no help in deciding the matter before us. iii). In the matter of Kesoram Industries Ltd., (supra) orders of the FAA had attained finality. AO did not give full effect to the said order of the FAA. An appeal was preferred against the order of the AO. FAA again directed to give full effect. Revenue filed an appeal before the Tribunal against the order directing implementation of earlier order. While deciding the appeal, Tribunal passed order pertaining to Assessment Years for which assessment had attained finality. Assess....