TaxTMI 
TaxTMI 
2024 (7) TMI 494
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....such proceedings. Under the facts and circumstances of the case, the action of initiating revisionary proceedings is without jurisdiction and is not permissible either in law or on facts. 2. The Id. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s. 263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 3. The ld. PCIT grossly erred in not appreciating that in order to invoke S.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action w/s. 263 of the Act. Under the circumstances, the very assumption of power u/s. 263 of the Act is unjustified and bad in law and therefore, order u/s. 263 of the Act deserves to be quashed. 4. The subject order u/s. 263 passed by Id. PCIT holding the impugned assessment order as erroneous is illegal and bad in law particularly w....
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..... Your case was selected for scrutiny to verify the issue of investment in intangible assets. The assessment was finalized u/s.143(3) of the Act on 17.03.2021 by accepting the returned income. 3. On examination of case records, it is noticed that the company claimed depreciation of Rs 83,87,835/- @25% on Rs 3,64,42,319/- in respect of intangible assets acquired during the year. It is also seen that the A.O. had vide notice u/s 142(1) dated 13.12.2019 asked for the need of intangible assets for the business and to provide the valuation report of the intangible asset carried out by professional valuer for F.Y. 2017-18 or earlier years, and in case of non-availability of valuation report, to submit third party valuation report of intangible asset for the F.Y. 2017- 18.The A.O. again vide notice u/s 142(1) dated 12.03.2021 sought third party valuation report by professional valuer but the same was not submitted nor any corroborative documents/evidence which could be relied upon for determining cost of the intangible assets. Despite issuing various notices by the A.O., it was contested that the company is following AS-26 to recognize the intangible assets and the accounting sta....
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....u/s.263 of the Act shall be finalized on the basis of the material available on record and on the merits of the case which may please be noted. Sd/- (RITA KUMARI DOKANIA) Pr. Commissioner of Income Tax-3, Ahmedabad" 5. Referring to the same, ld. Counsel for the assessee pointed out that, as per ld. PCIT, the assessment order was noted to be erroneous on account of the claim of depreciation on intangible assets, amounting to Rs. 83,87,835/- having been allowed to the assessee without making proper inquiry on the issue. Referring to paragraph No.3 of the show-cause notice, ld. Counsel for the assessee pointed out that, as per the ld. PCIT, the inadequacy of inquiry by the Assessing Officer and the incorrect allowance of claim of deprecation by the Assessing Officer was revealed from the case records on account of the fact that despite repeated insistence by the Assessing Officer to file a valuation report of the intangible assets, no valuation report had been submitted by the assessee, nor any corroborative evidences or documents filed which could be relied upon for evidencing the cost of intangible assets. That, on the contrary, the assessee had contented that it was ....
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....age nos. 517 to 561 of the paper-book, more particularly to paragraph nos. 52 and 53 of the same which reads as under:- "Cost of an Internally Generated Intangible Asset 52. The cost of an internally generated intangible asset for the purpose of paragraph 23 is the sum of expenditure incurred from the time when the intangible asset first meets the recognition criteria in paragraphs 20-21 and 44. Paragraph 58 prohibits reinstatement of expenditure recognised as an expense in previous annual financial statements or interim financial reports. 53. The cost of an internally generated intangible asset comprises all expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use. The cost includes, if applicable: (a) expenditure on materials and services used or consumed in generating the intangible asset; (b) the salaries, wages and other employment related costs of personnel directly engaged in generating the asset; (c) any expenditure that is directly attributable to generating the asset, such as fees to register a legal right and ....
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....evident." 11. He stated that the reference to fair market value in AS-26 is in totally different facts and circumstances, where an intangible asset is acquired in exchange of shares and securities. He stated, therefore, that it is clearly evident from the above that the ld. PCIT had misunderstood and wrongly applied the Accounting Standard AS-26 to the facts of the case to hold that the internally created intangible asset of the assessee by way of designs was to be valued by a third party valuer and the Assessing Officer having not got this valuation done, his acceptance of the value of intangible asset was incorrect and accordingly allowance of claim of depreciation thereon to the assessee. 12. Going forward he took us again to para 4 of the show cause notice and pointed out that the case of error in the assessment order made out therein is that as per the method followed by the assessee for valuing its intangible on the basis of actual cost incurred by bit on developing it , it was difficult to determine expenses exclusively incurred for development of the intangible(design) and therefore the AO had wrongly accepted the valuation of the assessee and allowed depreciation ....
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....nditure, i.e. 100% of the expenditure incurred on designs as opposed to only depreciation claimed by the assessee on it. 14. The ld. DR, however, stated that there was no infirmity in the assumption of jurisdiction by the ld. PCIT to revise the order of the Assessing Officer and it was a valid assumption of jurisdiction. 15. Having heard both the parties and having carefully gone through the contents of the show-cause notice as also the documents, being AS-26, referred to by the ld. Counsel for the assessee before us, we are inclined to agree with the ld. Counsel for the assessee that the very basis for assumption of jurisdiction by the ld. PCIT in the present case exercising revisionary jurisdiction over the assessment order passed by the Assessing Officer was flawed. 16. As is evident from the notice issued by the ld. PCIT for initiating proceedings under Section 263 of the Act, the reason for revising the assessment order was, as per the ld. PCIT, the incorrect allowance of claim of depreciation of the assessee on intangible assets and the show-cause notice reveals that the basis for arriving at this finding by the ld. PCIT was that while the accounting standard "AS-26"....
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.... the ld. PCIT's belief that the assessee had not followed AS-26 was an incorrect and completely flawed understanding of the Accounting Standard. 18. We completely agree with the ld. Counsel for the assessee that the very basis, therefore, for assumption of jurisdiction under Section 263 of the Act by the ld. PCIT was flawed, based on wrong premises, and therefore, the entire proceedings conducted by the ld. PCIT, we hold, was not valid. 19. Going forward from here, we also agree with the ld. Counsel for the assessee that the only error noted by the ld. PCIT was vis-à-vis the valuation of intangible assets, resulting in incorrect allowance of deprecation to the assessee. As noted above, the ld. PCIT was aware that the assessee has valued the intangible assets based on actual expenses incurred for the same. The case of the ld. PCIT being that the assessee had incorrectly valued the intangible assets; it only means that the expenses incurred by the assessee were not to be included in the valuation of intangible assets. These expenses otherwise not being doubted by the ld. PCIT either with regard to their genuineness or with respect to the fact that they were incurred for ....
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.... AO, vide notice dated 13.12.2019 u/s 142(1), called upon the assessee to furnish the following details in relation to "addition to intangible assets"'. * Nature of intangible assets added to the block. * Details of party from whom assets have been acquired. * Agreement for purchase of intangible assets. * Details of mode of payment. * Valuation report of intangible assets. * Business need of the intangible assets 56-57 27.02.2020 Assessee, vide letter dated 27.02.2020, made the following submissions before AO: * Assessee is engaged in the business of manufacturing laboratory and medical equipment such as centrifuges, stirrer, shakers, etc.. Assessee is researching various details for developing its own products for manufacturing. * Procedure adopted since inception by the assessee was made known to AO and the same is as follows: _ Assessee procures material and engages its technical personnel for designing and developing its products in-house. _ All the costs incurred in relation to development (including but not limited to salary of Director and R&D Staff) is transferred to 'Work-in-progress a/c '. _ During the year, there w....
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....uct / design undertaken by assessee. * Documentary evidences furnished in support of the issue on hand. _ Sample working of costing of a design (I-Fuge M18) developed during the year under consideration with working of cost allocation was furnished (Pg.70 of PB). _ Assessee has been consistently following such method in respect of all designs developed in-house. 65-70 12.03.2021 AO, vide notice dated 12.03.2021 u/s 142(1), called upon the assessee to furnish following details / documents: _ Whether any valuation of intangible assets was carried out by any professional valuer for FY 2017-18 or for any earlier year. _ If yes, copy of valuation report, was called for. _ If no, assessee was called upon to state as to why assessee's case should not be referred to a Government Approved Valuer for valuation of intangible assets or assessee may submit a third party valuation report of intangible assets for FY 2017-18. 15.03.2021 Assessee, vide letter dated 15.03.2021, submitted before AO as follows: _ It is mentioned in Audited Financial Statements that "intangible assets " are recognized in accordance with "AS- 26 - Intangible assets", as i....
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....salary to staff are debited to the intangible asset account. The assessee had also pointed out that it had created 66 such designs incurring the total cost of Rs. 3,64,42,319/- and on which deprecation was being claimed. The details of depreciation on intangible assets was submitted and the assessee had also evidenced the cost incurred on creation of such designs by providing ledgers of all expenses incurred in the process along with supporting evidences. The assessee had pointed out that no intangible assets had been acquired by them during the year and, therefore, no question for its valuation arose. That it was developed its own designs and transferring all relevant expenses incurred for this activity to the designated account. A sample working of the costing of a design developed during the year with the working of cost allocation was also furnished and the assessee pointed out that it had been consistently following such method in respect of all designs developed in- house. The assessee was specifically asked whether it had got the valuation of intangible assets carried out by any professional valuer either during the year or in any earlier year and if not, as to why the asses....