TaxTMI 
TaxTMI 
2025 (11) TMI 648
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....ent Unit-Income tax Department-New Delhi ('Ld. AB) is erroneous in nature and is prejudicial to the interest of revenue in terms of section 263 of the Act. 2. Disallowance of depreciation amounting to Rs. 1,48,30,256/- on Goodwill: 2.1 On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in contending that the depreciation amounting to Rs. 1,48,30,256 on Goodwill acquired in Industrial Mixing Solution Division from Sudarshan Chemical Industries Ltd on slum sale basis, is not allowable under section 32 of the Act thereby upholding the revision proceeding under section 263 of the Act. 2.2 In doing so, the Pr. CIT failed to appreciate the facts that the issue of claim of depreciation has been examined, considered and concluded by the Ld. AO during the assessment proceedings and upholding the revision proceeding under section 263 of the Act on account of change of opinion, is not permissible in law. 3. Disallowance of provision for warranty amounting to Rs. 48,50,000/-: 3.1 On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in contending that the provision for warranty amounting to Rs. 48....
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.... specific issues - firstly, the allowability of depreciation of Rs. 1,48,30,256/- claimed on goodwill; secondly, the allowability of provision for warranty claimed by the assessee without necessary examination of conditions laid down by the Hon'ble Supreme Court in Rotork Controls India (P) Ltd. v. CIT (2009) 314 ITR 62 (SC); and thirdly, the allowability of deduction under section 80G amounting to Rs. 62,17,834/- claimed in respect of Corporate Social Responsibility (CSR) expenditure of Rs. 94,35,667/-, which according to the Pr. CIT, was not allowable in view of Explanation 2 to section 37(1) of the Act. 3.1. Accordingly, a show-cause notice under section 263 of the Act dated 21.01.2025 was issued requiring the assessee to explain why the assessment order dated 16.09.2022 should not be revised as being erroneous and prejudicial to the interests of the Revenue. In response, the assessee filed a detailed submission contending that depreciation on goodwill was allowable following the ratio laid down by the Hon'ble Supreme Court in CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), that the provision for warranty was in line with the principles laid down by the Hon'ble Supreme ....
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.... section 263 of the Act is erroneous inasmuch as all the three issues-namely, depreciation on goodwill, provision for warranty, and deduction under section 80G in respect of CSR expenditure-were duly examined and enquired into by the Assessing Officer in the course of the original assessment proceedings, and after due verification, a conscious view was taken by the Assessing Officer accepting the assessee's explanation and computation. With regard to the issue of depreciation on goodwill, the counsel submitted that the Assessing Officer had made a detailed enquiry on this aspect. Our attention was invited to pages 44 to 49 of the paper book wherein the Assessing Officer's queries under sections 142(1) and 143(2) of the Act, as well as the assessee's replies, were placed on record. It was pointed out that the Assessing Officer had specifically called upon the assessee to explain the allowability of depreciation on goodwill vide show-cause notice dated 30.08.2022, to which the assessee furnished a detailed response referring to the judgment of the Hon'ble Supreme Court in CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) and Trio Elevators Co. (India) Ltd. v. ACIT (ITA No. 2477/Ah....
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....appeal. Therefore, there was neither any error nor any prejudice caused to the Revenue on this count. Regarding the claim of deduction under section 80G, the learned counsel submitted that the Assessing Officer had conducted an extensive verification during the assessment proceedings. Reference was made to page 35 of the paper book containing the show cause notice issued by the Assessing Officer, and page 38 containing the assessee's detailed reply. The Assessing Officer had specifically called for donation receipts, bank statements highlighting donations, copies of registration certificates under sections 12A and 80G of donee organizations, and details of CSR treatment. After verification of all documents and after conducting online verification of donee organizations, the Assessing Officer recorded a categorical finding in the assessment order that the donations were genuine, eligible under section 80G, and properly supported by receipts and certificates. The learned counsel further submitted that the CSR activities undertaken by the assessee were not in the nature of prohibited activities under section 80G and were duly approved charitable activities within the scope of Schedule....
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....l, we observe that the Assessing Officer had specifically called upon the assessee to justify the claim and the assessee had furnished detailed submissions relying upon the decision of the Hon'ble Supreme Court in CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) and Trio Elevators Co. (India) Ltd. v. ACIT (ITA No. 2477/Ahd/2011). After examining the submissions and the nature of goodwill arising on account of business restructuring, the Assessing Officer accepted the claim. The Hon'ble Gujarat High Court in Pr. CIT v. Aculife Healthcare (P.) Ltd. [2023] 155 taxmann.com 283 (Guj.) / [2025] 477 ITR 392 (Guj.) has held that depreciation on goodwill representing the excess consideration paid for acquisition of a going concern is allowable under section 32(1) of the Act even post amendment. Therefore, the view taken by the Assessing Officer was a plausible view in law and cannot be termed as erroneous merely because the Principal CIT did not agree with it. With respect to the provision for warranty, we observe that the assessee has been following consistent method for estimating warranty obligations based on historical data, which has been accepted by the Department in earlier asses....