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2009 (8) TMI 838

..... od Kumar, Accountant Member. - By way of this appeal, the assessee-appellant has called into question correctness of the order dated 27-3-2006, passed by the learned Commissioner of Income-tax (Delhi-IV) under section 263 of the Income-tax Act, 1961. 2. Grievance of the assessee is that the learned Commissioner erred in assuming jurisdiction under section 263, on the facts of the present case, and that, in any event, even on merits, order of the learned Commissioner is contrary to law and inappropriate to the facts of the case. Elaborate grounds of appeal, as set out in the memorandum of appeal, mainly constitute arguments in support of this grievance. 3. The material facts of the case, as relevant for the purposes of adjudicating upon assessee s above grievances, are like this. The assessee before us is a domestic company engaged in the business of manufacturing and distribution of aerated and non-aerated beverages. Its assessment under section 143(3) was completed on 31-3-2004 at a net loss of Rs. 4,35,28,17,620. However, when learned Commissioner called for and examined the assessment records, she was of the view that the assessment was erroneous insofar as it was prejudicial to .....

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..... ritten submissions filed during the assessment proceedings, it could not be said that the Assessing Officer has not applied his mind to the same. Hon ble Supreme Court s judgment in the case of CIT v. B.C. Srinivas Setty [1981] 128 ITR 2941 which was referred to by the learned Commissioner was distinguished on the ground that the said decision was in the context of capital gains, and a subsequent amendment to section 55 has now ensured that the goodwill is treated as capital asset. A reference was also made Accounting Standard 26 dealing with intangibles. It was further submitted that the goodwill was carried forward from earlier years and as such the question about entitlement of depreciation on the same stood concluded in the earlier years. In the light of, inter alia, these and other submissions, learned Commissioner was urged to drop the revision proceedings. 4. Learned Commissioner was, however, not impressed by the submissions so made by the assessee. While he took note of the fact that the assessee had, by way of a note to the accounts, justified and reasoned that what has been termed as goodwill is infact a valuable commercial asset similar to other intangibles mentioned in .....

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..... (a) above assists in planning production schedules and difference referred to in (b) above represents the value of various contracts and agreements acquired by the company. This being a valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets, is eligible to depreciation. Accordingly, depreciation on goodwill payments after 1-4-1998 has been calculated as per section 32 of the Income-tax Act, 1961. 7. The matter did not rest at filing of this justification itself. Vide letter dated 15-9-2003, the Assessing Officer did raise a query on the admissibility of the above claim. His specific question was as follows :- You have claimed that the goodwill acquired by you was eligible for depreciation being in the nature of know-how and depreciation was allowable on the same. Please justify your claim. 8. In response to the aforesaid question, the assessee, vide letter dated 8-1-2004, had submitted as follows :- Goodwill is the consideration paid to various bottlers for marketing and trading reputation, trading style and name, marketing and distribution territorial know-how and information of territory. It includes know-how related to acquired .....

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..... ceed on the basis, as the learned Commissioner has chosen to proceed, that once an amount is described as goodwill in the books of account, depreciation thereon as an intangible asset cannot be admissible on the same. It is also important to bear in mind that it not plainly on perusal of an assessment order that the Commissioner can exercise his powers under section 263; he must examine the entire records of proceedings. Learned Commissioner must therefore take into account all the material facts on record which are of relevance. As for learned Departmental Representative s reliance on the decision of Ahmedabad C Bench of this Tribunal in the case of Bharatbhai J. Vyas v. ITO [2005] 97 ITD 248, that is a case in which Tribunal gave a categorical finding that the goodwill was paid only for retirement of a partner and without acquisition of any intangible asset as contemplated under section 32(1)(ii) . The facts of the present case, in which the payment is made towards business acquired on slump price and a part of the price so paid is allocated to the intangible assets covered under the head goodwill , are materially different and have no resemblance to the case before the Ahmedabad .....

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..... re was no change in the facts of the case nor there was slightest change in the legal position in this year vis-a-vis the earlier years in which claim was allowed. As regards Assessing Officer not commenting upon the legality of the claim, we have noted that the Assessing Officer examined the submissions of the same and did comment upon the same when, and to the extent, he did not agree with the submissions, i.e., on the question of allowing depreciation on leasehold rights. The fact that there are no elaborate discussions about a claim of deduction cannot, in the light of the decision of a coordinate bench in the case of Khatiza S. Omerbhoy v. ITO ( 100 ITD 173 ), cannot be a good ground for assuming jurisdiction under section 263. In these circumstances, in our considered view, from the fact that the Assessing Officer has not discussed the claim of depreciation on goodwill in the assessment order even though the same claim was allowed in the earlier years and even though the Assessing Officer had before him detailed explanation in support of legal claim, it cannot be inferred that the Assessing Officer did not apply his mind to the matter. His decision to accept the submission of .....

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