TaxTMI 
TaxTMI 
2026 (9) TMI 1254
X X X X Extracts X X X X
X X X X Extracts X X X X
....furnished by the assessee during the course of regular assessment proceedings itself. It has further been contended that the assessment was framed with due application of mind and therefore, the revision was unjustified. Reference has been made to various judicial decisions, the copies of which have been placed on record. The Ld. CIT-DR, on the other hand, advanced arguments supporting the impugned revisionary order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 3. From the case records, it emerges that the assessee being resident corporate entity is stated to be engaged in manufacturing of Bread and Bakery products. The assessee filed return of income on 01.11.2022 at Rs. 24.74 Crores. The case was subjected to complete scrutiny and the issues as identified therein was non-compliance of Accounting Standards Rules, 2015 and issue of deemed income u/s 41. During the course of assessment proceedings, multiple notices u/s 142(1) were issued by Ld. AO on 02.06.2023, 08.08.2023 and 02.01.2024 calling for various details from the assessee. A reminder letter was also issued on 17.01.2024 and final show-cause notice was issued on 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sets including the acquisition of trademark, relevant invoice and due enquiry was conducted by Ld. AO. The payment of purchase of trademark was made through banking channels. The Ld. AO had with him all the primary documents evidencing the acquisition of the trademark including audited financial statements, notes to the accounts, depreciation chart, Tax Audit Report detailing the acquisition of trademark and computation of income summarizing total depreciation as claimed by the assessee. The Ld. AO duly examined the same and after being satisfied with the bona-fide nature of the transaction and explanation furnished, accepted the claim of depreciation on trademark. 6. It was further stated that there was no requirement in law that the valuation of a fixed asset must be supported by a valuation report. The purchase invoice and the relevant disclosures made in the financial statements evidencing the purchase of fixed assets and the claim of depreciation in the fixed assets schedule was reasonably sufficient enough for the Ld. AO for form a view on the genuineness of the claim. The Ld. AO had taken a plausible view after raising specific queries, after making sufficient enquiries a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te scrutiny and Ld. AO had raised specific queries regarding fixed assets and depreciation. The assessee furnished various details including fixed asset schedules, invoices, and financial statements etc. Further, there was no requirement of valuation report and the purchase of trademark was the business decision of the management which could not be questioned. Although general queries were raised by Ld. AO with respect to fixed assets but no specific inquiry was raised on the valuation of the trademark having substantial value. There was no material on record to indicate that Ld. AO had examined the basis of such valuation, the method adopted for determining the fair market value, or the justification for such a significant capitalization of an intangible asset. The assessment order was completely silent on the ownership and economic rights associated with the trademark prior to its acquisition, which clearly establishes that the claim was accepted without due verification / application of mind. As per Explanation 2(a) to Section 263 of Income Tax Act, an order passed without making enquiries or verification which should have been made, shall be deemed to be erroneous in so far as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r is to be examined on the basis of material available before Ld. AO at the time of passing the order. Subsequent submissions cannot validate an order which was passed without proper inquiry. The contention of the assessee that the department could not question the commercial rationale of the transaction merely because it involves a related party is not tenable in law, particularly in the facts of the present case. While it is true that business decisions are generally left to the management, this principle does not operate to shield transactions from scrutiny under the Income Tax Act, 1961 where such transactions may have a direct bearing on the computation of taxable income. The trademark in question was acquired from Ramesh Kumar HUF, who was a related party just prior to purchase of trademark and it was an undisputed fact that the same trademark was used without any royalty payment prior to the purchase. The fact that a related party has become a previously related party has come to knowledge during proceedings u/s 263. The Ld. AO was completely oblivious of fact that ownership of company had changed hands during the year. This fact was quite material to whole transaction of pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lves a party which was related to assessee just before acquisition and assessee was a family-controlled entity and control was apparently held by Karta of same entity from whom trademark was purchased, the AO was duty-bound to examine whether the arrangement was genuine, whether the consideration was reasonable, and whether the claimed depreciation was correctly computed. The fact that no royalty expenditure was booked does not preclude scrutiny; rather, it raises questions about the commercial substance and timing of the acquisition, which are essential to ensure that the claim is not colourable or structured to unduly reduce taxable income. Further, the explanation regarding acquisition post-takeover by RRIL does not negate the need for inquiry, as the AO was required to satisfy himself that the consideration paid represents fair market value and that the transaction was not a mechanism to inflate the asset value or depreciation claim. Therefore, the assessee's assertion was unfounded. The assessment order does not indicate that Ld. AO had examined the fair market value of the trademark. Merely producing financial statements, invoices, and notes to accounts could not substitu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts computation of income, details of unsecured loans, sundry creditors, investments, details of additions to fixed assets along with copy of relevant bills, ledger of various expenses & vouchers. The assessee, vide its reply dated 30.12.2023, furnished substantial details as required by Ld.AO. In reply dated 15.01.2024, the details of additions to fixed assets along with copies of major bills were also furnished vide Page Nos. 1 to 38. The addition to trademark was shown at Rs. 50.37 Crores for which the assessee furnished GST Bill No.1 showing procurement of trademark from M/s Ramesh Mago HUF. The valuation of trademark was done as per the report issued by M/s Grant Thorton during September, 2021. This report was obtained prior to actual acquisition of the trademark. The report clearly takes note of the fact that Ramesh Mago HUF was the exclusive owner of trademark kitty. The owner and the assessee company entered into an agreement dated 14.09.2017 to license the trademark to the company for selling its products on a royalty-free basis against security deposit of Rs. 425 million. The fair value of the trademark, in the report, was determined at Rs. 450.70 million. The said tradema....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in ownership of the company and related party nature of the trademark transaction were all specifically disclosed in the audited financial statements. The Ld. AO raised specific query on addition to fixed assets which were duly been responded to by the assessee along with relevant bills etc. The AO had raised specific queries regarding addition to fixed assets and due enquiry was conducted by Ld. AO on the same. The payment of purchase of trademark was made through banking channels. The Ld. AO had with him all the primary documents evidencing the acquisition of the trademark including audited financial statements, notes to the accounts, depreciation chart, Tax Audit Report detailing the acquisition of trademark and computation of income summarizing total depreciation as claimed by the assessee. The Ld. AO duly examined the same and after being satisfied with the bona-fide nature of the transaction and explanation furnished, accepted the claim of depreciation on trademark. On these undisputed facts, the allegation of Ld. Pr. CIT, in our considered opinion, could not be said to be well founded. We also note that there is no requirement in law that the valuation of a fixed asset must ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... our considered opinion, the revisionary power u/s 263 is a supervisory power and its exercise is conditioned upon satisfaction of the twin requirements that the assessment order is erroneous as well as prejudicial to the interest of the revenue. The Hon'ble Supreme Court in its landmark case of Malabar Industrial Co. Ltd. v. CIT [243 ITR 83 (SC)] has held that an incorrect assumption of facts or an incorrect application of law may render an order erroneous, but where the AO adopts one of the courses permissible in law or where two views are possible and the AO has taken one such view, the order cannot be branded as erroneous merely because the Commissioner does not agree with it. The same principle has been reiterated in CIT v. Max India Ltd. (295 ITR 282). Equally important is the distinction between lack of enquiry and inadequate enquiry. The Hon'ble Delhi High Court in CIT v. Sunbeam Auto Ltd. (332 ITR 167) held that where Ld. AO has conducted an enquiry, the mere fact that such enquiry was considered inadequate by the Commissioner would not, by itself, justify assumption of jurisdiction u/s 263. The Court specifically recognized that it is only in cases of lack of enqu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the Sec. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated. The ratio of this decision squarely applies to the facts of present case before us. In the present case, Ld. Pr. CIT has not established that the explanation furnished by the assessee regarding depreciation claim was factually incorrect or legally unsustainable. The fact that certain....