AI Drafter 
TaxTMI 
TaxTMI 
2023 (7) TMI 491
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....and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of running electronic goods retail network in the name and style of "CROMA". The return of income for the A.Y.2013-14 was filed by the assessee company on 29/11/2013 declaring loss of Rs. 6,19,61,820/-. Subsequently, the revised return was filed by the assessee on 31/03/2015 declaring total loss of Rs. 53,26,02,366/- on the basis of merger of "Infinity Wholesale Ltd.," with "Infinity Pvt. Ltd.," pursuant to the order of the Hon'ble Bombay High court dated 04/04/2014 w.e.f. 01/04/2012. The assessment was completed u/s. 143(3) r.w.s.144C(3) of the Act on 28/12/2016 determining loss of Rs. 46,61,24,517/- under normal provisions of the Act and book loss of Rs. 17,78,58,239/- u/s. 115JB of the Act. In the said assessment, various disallowances were made by the ld. AO which are subject matter of appeal before the ld. CIT(A). The assessment framed by the ld. AO on 28/12/2016 was sought to be revised by the ld. PCIT by invoking revision jurisdiction u/s. 263 of the Act on the ground that the order passed by the ld. AO i....
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....016 as erroneous in so far as it is prejudicial to the interests of the revenue". 3.1. In response to the show-cause notice dated 20/02/2019, assessee company filed its reply vide letter dated 08/03/2019 before the ld. PCIT as under:- Background ● The assessee company is a wholly owned subsidiary of Tata Sons Limited. The assessee operates a national chain of multi-brand electronic stores of consumer electronics and durables under the brand name "Croma". ● As per the scheme of amalgamation approved by the Hon'ble Bombay High Court by way of merger order dated 4 April 2014, the assessee and Infiniti Wholesale Limited (Formerly known as Woolworths Wholesale India Private Limited) ('IWL') got merged with effect from 1 April 2012. Accordingly, IWL ceased to exist as separate legal entity with effect from 1 April 2012 and all the rights, liabilities and obligations of IWL had been transferred to assessee. ● However, before the merger order had been issued, the assessee company had filed the original return of income for AY 2013-14 on 29 November 2013 declaring total loss of Rs 6,19,61,820. Post receiving the merger order, the ....
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....ourse of the assessment proceedings. ● It is submitted that all the submissions and details submitted during the course of assessment proceedings had been duly verified and reviewed before passing the assessment order under section 143(3) of the Act. ● The scrutiny assessment of the assessee was completed under section 143(3) read with section 144C(3) of the Act vide assessment order dated 28 December 2016, wherein the following additions/ disallowances had been made to the returned loss of the assessee: Sr. No. Particulars Amount (in Rs) Business loss as per return of income (53,26,02,366) Add: Disallowance under section 14A of the Act 53,31,545 Add: Disallowance of stock revaluation 5,57,94,825 Add: Disallowance of advance written off 47,91,719 Add: Disallowance of soiled note 4,00,000 Add: Disallowance of Corporate Social Responsibility expenses 1,59,760 Total assessed income/ loss (46,61,24,517) ● From the above, it is evident that the claim deduction for premium on redemption of debenture and depreciation on goodwill had been duly allowed after con....
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....or example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." ● The Karnataka High Court in the case of Gokuldas Exports (20 Taxmann.com 491 (2012)] has held: "The phrase "prejudicial to the interest of the Revenue" under section 263 of the Act has to be read in conjunction with the expression "erroneous" order by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue." ● Based on the aforesaid paragraphs, following order can be termed as erroneous and Commissioner can invoke Section 263 provided the order is prejudicial to the interest of the revenue: • Which suffers from a patent lack of jurisdiction • Passed without due application of mind and/or • passed ....
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....11 (SC)] wherein it was held as under: "Section 263 provides for a revisional power. It has its own imitations. An order can be interfered with suo motu by the said authority not only when an order passed try the Assessing Officer is erroneous but also when it is prejudicial to the interests of the revenue. Both the conditions precedent for exercising the jurisdiction under section 263 are conjunctive and not disjunctive. An order of assessment passed by an ITO, therefore, should not be interfered with only because another view is possible." ● Reliance in this regard, can be placed on the decisions of Jurisdictional High Court in the case of Gabriel India Ltd (71 Taxman 585 (1993)]. ● Based on the aforesaid judicial precedents and facts of the case, it is clear that, when the assessing officer has taken one of the possible views, the Commissioner cannot exercise his revisionary powers under section 263 of the Act. ● In the instant case, both the proposed disallowances i.e. redemption of premium on debentures and depreciation on goodwill are sought to be made on the basis of the stand taken by the Assessing Officer in the assessm....
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.... submit as under: a. The assessing officer had duly made inquiries and conducted verifications regarding the claim of depreciation on goodwill and redemption premium on Non convertible Debentures b. The assessee had filed detailed submission giving justification regarding its claim of depreciation on goodwill with the assessing officer upon the inquiry by the assessing officer. Besides, the said submission had duly been taken on record by the assessing officer before passing the assessment order for AY 2013-14.The aforesaid claims were allowed in the assessment order for AY 2013-14 after considering the provisions of the Act. C. There is no order, direction or instruction issued by the Central Board of Direct Taxes under section 119 on respect of the issue of claim of deduction of premium on redemption of debentures and depreciation on goodwill d. The assessee would like to mention here that, while claiming depreciation on Goodwill, the assessee had relied on the Hon'ble Supreme Court decision in case of Smifs Securities Ltd where in the contention of the assessee to claim the depreciation on Goodwill had been allowed. ● Consid....
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....sessee had relied on the Hon'ble Supreme Court decision in case of Smits Securities Ltd where in the contention of the assessee to claim the depreciation on Goodwill had been allowed. ● Accordingly, it is humbly submitted that the conditions prescribed in Explanation 2 to Section 263(1) of the Act do not get satisfied ● Attention is also invited to the decision of the Mumbai Tribunal in the case of Narayan Tatu Rane (70 taxmann.com 227). In this decision, the Tribunal observed that clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without making enquiries of verification which a reasonable and prudent officer shall have carried out in such cases. ● Hence, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every ....
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....oods from Hong Kong and other local vendors for private label products which were sold under the brand name 'Croma • Infiniti Wholesale Limited also managed the logistic operations and operated warehouses in Maharashtra, Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh, NCR and Punjab,\ • With the merger of Infiniti Wholesale Limited with the assessee, the assessee acquired intangible assets such as vendor contract, brand, supply chain resources etc of Infiniti Wholesale Limited. These underlying assets form part of the 'Goodwill • Goodwill is also approved by the Scheme of amalgamation filed before the Hon'ble Bombay High Court vide its order dated 4 April 2014. A copy of the scheme filed before the Bombay High Court is attached as Annexure 9 and the order of the Bombay High Court is attached as Annexure 10. The said scheme was submitted, considered and depreciation had been granted to assessee in the earlier assessment years as well. • The Accounting treatment given under Scheme of Amalgamation approved by the High Court has also been reads as under: 15.1 The Transferee Company shall upon the Scheme coming int....
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....ny in order to retain its existing clientele should be considered as goodwill The Supreme Court held that Goodwill in this case was an asset under Explanation 3(b) to Section 32(1) of the Act and hence eligible for depreciation. The relevant extract of the case is reproduced below: "... Explanation 3 states that the expression asset shall mean an intangible: asset, being know how, patents, copyrights, trademarks, licences, franchises or any other business or commercial nights of similar nature. A reading the words any other business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill would fall under the expression any other business or commercial right of a similar nature' The principle of ejusdem genens would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 1. The claim of goodwill has also been upheld in the following Judicial precedents a. CIT v Birla Global Asset Finance Co Ltd 221 Taxman176 b. Toyo Engineering, Mumbai ITAT judgement dated 13/10/2014, ITA No 3724/M/2008 C. India Capital Markets Pvt Ltd v Dy Commissioner of Income tax 56 SOT 32 ....
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....• At the outset, it is submitted before your Honour that, during the course of assessment proceedings for AY 2013-14, the assessee has submitted computation of income, wherein on the face of computation, the assessee has claimed the deduction in respect of redemption premium on Non- Convertible Debentures • The assessing officer has duly verified the line items of computation and then only passed the assessment order disallowing certain expenditures mentioned in the foregoing paragraphs • During FY 2011-12, the assessee had allotted Non-Convertible Debentures of Rs 150 Cr to J.P. Morgan Securities India Private Limited. The said Non Convertible Debentures were redeemed during AY 2015-16 and the premium payable on the redemption of the aforesaid debenture was Rs 56,53,50,000. • Judicial Precedents have held different views regarding the year of deductibility of either discount on issue of debentures or premium payable on redemption of debentures. The Supreme Court in the case of Madras Industrial Investment (91 Taxmann 340) has held that assessee was entitled to proportionate deduction of discount spread over the period for which the debe....
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.... view of the foregoing, we humbly pray to your Honour to drop the proceedings initiated under section 263 of the Act. We request you to take the above submission on records. We would be glad to submit any further information that your Honour may require in respect of the aforesaid submissions. Yours faithfully, For Infiniti Retail Limited Authorised Signatory Encl.: As above 3.2. With regard to the objection made by the assessee that the issue of claim of expenditure in respect of redemption of premium of nonconvertible debentures as well as the claim of depreciation on Goodwill which were already examined by the ld. AO during the course of assessment proceedings is concerned, the ld PCIT merely observed that the ld.AO had accepted the contentions of the assessee without any verification thereon. Accordingly, the ld. PCIT sought to invoke Explanation 2 to Section 263 of the Act clause (b) in respect of depreciation on Goodwill and clause (d) thereon in respect of issue of allowability of redemption on premium of non-convertible debentures. Accordingly, the ld. PCIT was justified the invocation of revision jurisdiction u/s. 263 of the ....
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....herefore, no Goodwill is possible thereon. The ld. PCIT further observed that there was no mention about Goodwill in the scheme of arrangement. 3.6. We find that the fact of amalgamation is not in dispute as the same has already been taken note by the ld. AO in page 1 of the assessment order. The effect of amalgamation has been captured by the assessee by way of vesting of various assets and liabilities after cancellation of intercompany entries thereon in the revised return filed by the assessee on 31/03/2015 which has been taken due cognizance by the ld. AO while completing assessment on 28/12/2016. We find that the ld. AO during the course of assessment proceedings had issued notice u/s. 142(1) of the Act dated 18/10/2016 together with the questionnaire wherein vide question no.8 had sought for complete details of other expenses claimed by the assessee, among other items. The assessee vide reply letter dated 26/12/2016 had furnished complete workings of arriving at the Goodwill and justification for claiming depreciation on Goodwill. We find that the business of Infiniti Wholesale Ltd (IWL) is amalgamated with the business of assessee company. IWL was wholly owned subsidiary ....
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....ote on affidavit dated 28/02/2014 filed by the Regional Director of Ministry of Corporate Affairs wherein he had affirmed that the scheme of arrangement is not prejudicial to the interest of the shareholders and public. The entire accounting treatment to be given pursuant to the transfer of assets and liabilities of the amalgamating company with the amalgamated company were also forming part of the scheme of arrangement and that has also been approved by the Hon'ble Bombay High Court. The relevant accounting treatment mentioned in the scheme of arrangement is reproduced hereunder for the sake of convenience:- "On the Scheme becoming effective, the Transferee Company shall count for the amalgamation of the Transferor Company with the Transferee Company in its books of account with effect from the Appointed Date as under: 5.1. The Transferee Company shall upon the Scheme coming into effect, record all assets and liabilities of the Transferor Company vested in it pursuant to this scheme, at their respective fair values as on the Appointed Date. 5.2. The investments held by the Transferee Company in the Transferor Company shall stand cancelled and there shall....
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....ade by the ld. AO in A.Y.2015-16 u/s. 143(3) of the Act. This goes to prove that the ld. PCIT had not independently applied his mind as to whether the assessee is entitled for depreciation on Goodwill or not? He simply relies on the order passed by the lower authorities to justify his invocation of revision jurisdiction u/s. 263 of the Act which is beyond the mandate provided in Section 263(1) of the Act. We also find that under similar facts and circumstances, the Co-ordinate Bench of this Tribunal in the case of DCIT vs. Toyo Engg. India Ltd., in ITA No.3279/Mum/2008 for A.Y.2003-04 dated 30/10/2014 had indeed granted depreciation on Goodwill arising on amalgamation by placing reliance on the decision of the Hon'ble Supreme Court in the case of Smifs Securities Ltd., referred to supra. In any case, the decision of this Mumbai Tribunal, decision of the Hon'ble Supreme Court and the decision of the Hon'ble Bombay High Court approving the scheme of merger were all available before the ld. AO while framing the assessment. The ld. AO after taking due cognizance of all these documents and case laws had indeed taken a possible view in the matter, which in our considered opinion, is also....
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....primafacie makes the order of the ld. AO erroneous and prejudicial to the interest of the Revenue in A.Y.2013-14. To this extent, the invocation of revision jurisdiction by the ld. PCIT u/s. 263 of the Act may be correct. It is pertinent to note that the claim of the assessee on accrual basis with regard to the premium on redemption of debentures equally over the period of debentures is strictly in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd., reported in 225 ITR 802. Hence, it cannot be said that there was an inadvertent claim made by the assessee in A.Y.2013-14 on accrual basis. When the action of the assessee is in accordance with the decision of the Hon'ble Supreme Court, the ld. AO accepting the said claim of the assessee by duly following the decision of the Hon'ble Supreme Court , cannot be termed as erroneous order and it cannot be stated that the ld. AO had passed an order without application of mind warranting revision u/s. 263 of the Act by the ld. PCIT. In fact, the ld. AO had taken a correct view by allowing claim of the assessee on accrual basis in the A.Y.2013-14 as the said claim is in ....