TaxTMI 
TaxTMI 
2025 (5) TMI 120
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....loss so assessed to be carried forward for next year. 3. Thereafter, the Ld. Pr.CIT in terms of notice issued on 25.02.2022 invoked the provision of section 263 of the Act and asked the assessee to show cause as to why the assessment order be not cancelled/modified as it is erroneous and pre-judicial to the interest of the Revenue as the AO has allowed the claim of depreciation of INR 21,53,41,062/- without making any enquiries in this regard. After considering the submissions of the assessee, the Ld. Pr. CIT vide impugned order has held that the assessment order passed on 20.12.2019 is erroneous in so far it is prejudicial to the interest of revenue and disallowed the depreciation claimed at INR 21,53,41,062/- on goodwill being intangible asset and direct the AO to pass a consequential effect order. 4. Against such order, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:- 1. "That on law, facts & circumstances of the case, the Worthy Pr. CIT has grossly erred in assuming jurisdiction u/s 263 even when: 1.1. The original assessment order passed u/s 143(3) does not satisfy the twin conditions of being an 'erroneous o....
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....d at INR 86,13,64,249/- which is the differential amount of assets and liabilities taken over by the assessee company and is on account of goodwill. In the books of accounts, the said amount of goodwill is shown under the head "intangible asset under development" and no amortization was claimed in the Profit & Loss Account. However, while computing the income under the head "business and profession", the company had claimed depreciation/amortization @ 25% which comes to INR 21,53,41,062/-. The detailed working of the amount of goodwill is given in the audited financial statements in Note No.28 to Balance Sheet which is available at Paper Book page 35. The Ld. CIT(A) observed that the AO had allowed incorrect claim of depreciation without making any enquiry thus, the assessment order is erroneous and pre-judicial to the interest of the Revenue and therefore, disallowed the deprecation claimed by the assessee. 8. Before us, the Ld.AR for the assessee submitted that the assessee has purchased/acquired running division of New Spice Sales and Solutions Limited w.e.f. 01.06.2016 as a going concern under slump sale where the purchase consideration was paid at INR 86,13,64,249/- being t....
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....would strictly apply while interpreting said expression which finds place in Explanation 3(b)-"Goodwill" is an asset under Explanation 3(b) to S.32(1)-Appeal dismissed." 9. He also placed reliance on the certain other judgements in this regard and submitted that the Ld. Pr. CIT has invoked the provisions of Explanation-2 of section 263 to hold the assessment order as erroneous and prejudicial to the interest of revenue as AO has made no enquiry. But since depreciation on goodwill is an allowable expenditure in terms of judgement of Hon'ble Supreme court in the case of Smifs Securities Ltd therefore, there was no loss to revenue who ultimately has to allow the depreciation to the assessee. Accordingly, ld.AR requested for the cancellation of the order of Ld.Pr.CIT. He also placed reliance on various judgements which are tabulated as under:- [1] Areva T & D India Ltd. SLP(C) (CC) 21227/2012 (SC); [2] The Peerless General Finance & Investment Co.Ltd. 416 ITR 1 (SC). [3] Areva T & D India Ltd. & Ors. [2012] 345 ITR 421 (Del.HC); [4] Dabur India Ltd. [2021] 126 taxmann.com 259 (ITAT, Delhi); [5] Triune Energy Services Pvt.Ltd. 96 taxmann.c....
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....ly determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bonafide. As observed in N.R. Portfolio (P.) Ltd. (supra], the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. 24. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO fai....
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....nsidered with regard to validity of proceedings u/s 263 of 1.T. Act, 1961. Various judgments relied upon by the Revenue, in addition to the above, are as under:- 1. Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017. "The relevant judgment of Hon'ble Calcutta High Court in this case is also enclosed. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry." 2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) "where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercis....
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....mall amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified" 6. Order of Hon'ble ITAT F-Bench in the case of PTC Impex (India) Pvt. Ltd. Vs CIT, ITA No. 2860/Del/2010 dated 03.04.2018 Hon'ble ITAT Delhi F- Bench has held as under: "21. We have carefully considered the rival contention and also gone through the order of the Ld. CIT u/s 263 and the order of the assessing officer passed u/s 143 (3) of the act which was subject to revision by the CIT. We have also perused the various case laws cited before us by the parties. According to section 263 of the Act, Commissioner of Income tax can resort to corrective measures by revising the assessment order passed by the Assessing Officer, if after examining records such assessment order passed by the Assessing Officer, he (the Commissioner of Income-tax) found that such an order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. In Malabar industrial Co Ltd versus CIT 243 ITR 83 (SC) Hon'ble Supreme Court held the Commissioner has satisfie....
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.... record by the AO. The assessment in the present case was framed under section 143 (3) of the act on 31/12/2007. This itself shows that assessing officer has not looked at the books of accounts which are allegedly produced before AO as per version of the assessee on 26/12/2007. This too is the submission of the assessee before CIT (A) which has not been adjudicated by CIT (A). Even otherwise, mere production of books of accounts does not make the issues before us fall in to the category of inadequate inquiry If we agree to such an argument then, in all cases where the books of accounts were produced before the Id AO, then the case would fall outside the purview ITA No. 2860/Del/2010 A Y 2005-06 PTC Impex (India) pvt. Ltd Vs. The Commissioner Of Income tax of section 263 of the act. Further No records of communication by the AO to assessee and reply by assessee to Id AO was shown to us to show on these four issues that the Assessing Officer had applied his mind on any of them. According to us case before us is of Jack of inquiry and not absence of any inquiry All judicial precedents relied up on before us related to, absence of adequate inquiry but none of them dealt with the issues....
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....y source or suo motu is purely an administrative matter. If after calling for and examining the records, the Commissioner considers that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, then subsequent proceeding acquires quasi-judicial character. On comparison of sections 263 and 264 it would be seen that in section 264 the Commissioner may, either of his own motion or on an application by the assessee, call for the records of any proceeding under the Act. However, in section 263 the expression 'on his own motion' is absent. In the absence of such an expression and also in view of the fact that there is no restriction or limitation on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental Officer, the Commissioner could validly call for and examine the record of the assessee in the instant case for the relevant year pursuant to a letter of the Assessing Officer containing a proposal under section 263. Therefore, there was no merit in the contention of the assessee in this regard." 9. Order of Hon....
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....ficer, it is only when an order is erroneous that the section will be attracted. Thus, the Pr. CIT has looked into the aspect of the Assessment Order in the present case to the extent of erroneous and thus, Section 263 of the Act is attracted in the present case. Section 263 of the Act is not invoked simply for correcting mistake or error committed by the Assessing Officer in the present case. It can be observed that the Pr. CIT has considered all the contentions of the assessee and thereafter rightly come to the conclusion that the Assessing Officer failed to consider the fact that whether the assessee is entitled for claim under Section 80IC or not in respect of the products which do not come under the ambit of Fourteenth Schedule. It can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been done by the Assessing Officer before allowing the claim u/s 80IC of the Act. Thus, it i....
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....t was replied that the original shares purchased were of M/s Panchshul Marketing Ltd. which stands merged with M/s Kailash Automobile and the shares of Kailash Automobiles were allotted in the ratio of 1:1. Beyond this information there were no enquiries conducted by the Assessing Officer. The reliance of the Ld. AR on the case of Gabriel India Ltd is of no help to the assessee as it enunciated two principles namely i) the order is erroneous ii) by the virtue of the order being erroneous prejudice is caused to the interest of the Revenue. In the instant case there has been an information with the department which has been passed on to the Assessing Officer for verification and failure of the Assessing Officer to verify the transactions in the light of the information available makes the order erroneous and also prejudicial to the interest of the Revenue. The Assessing Officer has mentioned about inputs from investigation wing in assessment order but has not examined absolutely anything regarding the genuinity of the transactions. The Ld PCIT had enough material in his custody to prima facie to show that the tax which was lawfully 14 exigible has not been imposed. Similarly in the c....
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....er of the Assessing Officer just due to change of opinion, the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue: This is not a case of the Principal CIT not agreeing to the order of the Assessing Officer and nor a case of change of opinion. In fact that Assessing Officer has nor formed any opinion in allowing the long term capital gains and practically has not examined the issue at all. (d) There is a distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even if it was inadequate, it does not give right to the Commissioner to pass orders under section 263 merely because of a different opinion From the assessment order questionnaire it can be unequivocally held that this is a clear case of lack of enquiry. (e) The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded There are no fishing or ruin enquiries conducted by the Ld. Principal CIT nor directed the Assessing Officer to conduct such enquiries. (f) The assessee has already furnished all the documentary evidences which proves that transa....
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....ex Pvt. Ltd. vs. PCIT, ITA No. 2999/Del/2017 for A.Y. 2007-08 order dated 16.04.2018. "Thus, it can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer though reopened the assessment proceedings did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been made by the Assessing Officer. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceedings u/s 263 of the Act. The present case is covered by the decision of the Hon'ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Hon'ble Supreme Court held as under: "In all these cases, we fi....
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....on and assessment completed without making any addition on account of accommodation entry taken and the Ld. Pr. CIT's order u/s. 263 of the Act on account of the fact that the AO had not taken into consideration the material seized during search in the case of Sh. SK Jain. We further find that the present is also covered by the decision of the Hon'ble Supreme Court of India in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017 2017-TIOL-455-SC-IT, wherein the Hon'ble Supreme Court of India has dismissed the SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the AO, simply directed the AO to carry thorough and detailed inquiry. 6.6 In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we hold that the Ld. Pr. CIT has rightly exercised his jurisdiction under section 263 of the Act in setting aside the order of the Assessing Officer being erroneous in so far i....
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....g Officer was required to go into that issue in proper perspective and could not be perfunctory in his approach. The Assessing Officer, in the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the assessee, that statement was retracted. In a case like the instant one, it was necessary for the Assessing Officer to at least reflect that the retraction was proper. Another factor which was to be highlighted was that the entire cash belonging to two firms was found at the residence. (Para 11] In the aforesaid circumstances, the Commissioner held the view that the matter was not examined by the Assessing Officer. It was reasonably fit case for exercising revisionary jurisdiction under section 263. After all, the Commissioner gave another chance to the assessee to explain the source of cash. (Para 12) Once it was found that there was no proper consideration of the issue by the Assessing Officer, the very foundation of the order of the Tribunal was knocked off. Thereafter, the Tribunal had ventured to undertake the exercise by itself satisfying about the explanation tendered by the assessee which it could not do. When the Comm....
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....elhi has held as under: Section 263 of the Income-tax Act, 1961 Revision Of orders prejudicial to interest of revenue (Scope of) Assessment year 2010- 11-Whether Commissioner has power to consider all aspects which were subject matter of Assessing Officer's order, if in his opinion, they were erroneous, despite assessee's appeal on that or some other aspect -Held, yes [Paras 15 & 16]. 17. In the Judgment in CIT vs Paville Projects (P.) Ltd. 149 taxmann.com 115 (SC) [2023] the Hon'ble Supreme Court held as under: 7.3 Applying the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under section 263 ....
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....ssets under development" instead of 'intangible assets". Regarding non-amortization of the same in the books of accounts, it was submitted by the assessee before the Ld. Pr.CIT that the company is following Ind-AS while preparing the financial statements which prescribed as under:- ➤ "All identified assets and liabilities will be accounted at their carrying amounts, i.e. no adjustment would be made to reflect their fair values unlike in case of non-common control business combinations. ➤ Balance of retained earnings in the books of acquiree entity shall be merged with that of the acquirer entity, and identity of the reserves shall be preserved. ➤ Any difference, whether positive or negative, shall be adjusted against the capital reserves. Hence, no goodwill can be recorded in books under common control transactions under Ind AS 103. It should be shown as Negative Capital Reserve." 14. It is also observed by us that the assessee has duly disclosed the working of goodwill and followed the Ind-AS therefore, it cannot be questioned that when the deprecation was not claimed in the books of accounts, the same could not be allowed in the ....
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....g buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." 4. 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 rights 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 generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Inco....
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.... interest of Revenue' has to be read in conjunction with an erroneous order passed 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. This legal principle is also laid down by the Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. 295 ITR 282. 19. Recently, the Hon'ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. reported in 2023 (4) TMI 295 - SC, while relying upon Malabar Industrial Co. Ltd., has discuss....