TMI Blog2010 (8) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... -8-2010 - D.K. AGARWAL, PRAMOD KUMAR, JJ. Sunil M. Lala for the Appellant. Ajit Kumar Sinha for the Respondent. Order Per D.K. Agarwal, Judicial Member. This appeal preferred by the assessee is directed against the order dated5-11-2008passed by the ld. CIT under section 263 of the Income-tax Act, 1961 (the Act) for the assessment year 2004-05. 2. Briefly stated facts of the case are that the assessee company is engaged in the business of hotel and catering services. The return was filed declaring total income of Rs. 12,35,81,952. However, the assessment was completed at an income of Rs. 13,17,06,100 vide order dated 8-12-2006 passed under section 143(3) of the Act. Subsequently, the ld. CIT, in exercise of his powers under section 263 of the Act observed that the assessee had claimed depreciation under section 32(1)( ii ) amounting to Rs. 80,90,318, on goodwill of Rs. 3,69,84,311. The clause ( b ) to Explanation (3) to section 32(1)( ii ) of the Act defines Block of Assets to mean Intangible assets being know-how, patents, copy-rights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature. The order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of nature licences/approvals granted and its item-wise valuation was not verified by him and the same was also not submitted before the Assessing Officer. Therefore, the issue as to whether these approvals/registrations etc., amounts to intangible assets was not examined by the Assessing Officer. Hence, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue and accordingly he set aside the order passed by the Assessing Officer to be made afresh after giving proper opportunity to the assessee. 3. Being aggrieved by the order of the ld. CIT the assessee is in appeal before us taking following grounds of appeal : (1) On the facts and in the circumstances of the case, the ld. CIT-3 has legally erred in assuming jurisdiction under section 263 of the Income-tax Act, 1961 ( the Act ). (2) On the facts and in the circumstances of the case, the ld. CIT has legally erred in holding that the order passed by the ld. Assessing Officer is erroneous and prejudicial to the interest of the revenue. (3) On the facts and in the circumstances of the case, the ld. CIT has legally erred in passing the impugned order in violation of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer issued a questionnaire dated 24-10-2006 wherein in point No. 3 the Assessing Officer asked the assessee to justify the claim of depreciation of intangible assets with detailed working and in response the assessee filed his reply dated 22-11-2006 inter alia stating that the depreciation has been claimed at the rate of 25 per cent on opening WDV of Rs. 3,23,61,272 and the copy of the questionnaire and assessee s explanation are appearing at pages 103 to 111 of assessee s paper book. He further submits that the Assessing Officer after considering the assessee s explanation has accepted the claim of depreciation including depreciation on goodwill, vide impugned assessment order for assessment year 2004-05, dated8-12-2006 passed under section 143(3) of the Act. He further submits that since the claim of depreciation has been accepted by the Assessing Officer after due examination, therefore, the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the revenue. He further submits that since the depreciation on goodwill has already been allowed for the assessment year 2003-04 and in the year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and clause ( ii ) of section 32(1) thereof enumerates the intangible assets on which depreciation is allowable. Any right which is obtained for carrying on the business effectively and profitably has to fall within the meaning of intangible asset. Goodwill is also an intangible asset of similar nature referred to in clause ( ii ) of section 32(1) and therefore depreciation is allowable on the same. 9. He also placed reliance on the decisions in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.); Mrs. Khatiza S. Oomerbhoy v. ITO [2006] 101 TTJ (Mum.) 1095; Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 (Delhi); Addl. CIT v. Shipra Estate Ltd. [2010] 35 SOT 256 (Delhi) and Chroma Business Ltd. v. Dy. CIT [2004] 82 TTJ (Kol.) 540for the proposition that if the query has been raised by the Assessing Officer on the issue in dispute in respect of which assessee has given its representations and details of the claim before the Assessing Officer, revision by the CIT under section 263 on the same issue is bad in law. Further, mere lack of discussion of the issue in the assessment order would not render the said order erroneous. Merely because Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amendment has been explained in a Board Circular No. 772, dated23-12-1998 as under : 15. Depreciation to be allowed on tangible assets - 15.1 Under the existing provisions of section 32 of the Income-tax Act, depreciation is allowable only on tangible assets, being buildings, machinery, plant or furniture. The Act amends this section to widen its scope by providing that depreciation will also be allowable in respect of intangible assets, being know-how, patents, copyrights, trademarks, licences or franchises or any other business or commercial rights of similar nature, acquired on or after the 1st day of April, 1998. The Act also amends the definition of the term block of assets so as to include these intangible assets within the meaning of block of assets. The rate of depreciation in respect of these intangible assets has since been prescribed at 25 per cent vide Notification SO No. 781(E), datedSeptember 4, 1998. 14. In Malabar Industrial Co. Ltd. s case ( supra ). Their Lordships under para 10 of the judgment have taken the view that : The phrase prejudicial to the interests of the Revenue has to be read in conjunction with the expression erroneous or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee. 17. In Hindustan Coca Cola Beverages (P.) Ltd. ( supra ) it has been held (headnote) : The fact that there are no elaborate discussions about a claim of deduction cannot, in the light of the decision of a Co-ordinate Bench in the case of Mrs. Khatiza S. Oomerbhoy v. ITO [2006] 101 TTJ (Mumbai) 1095: [2006] 100 ITD 173 (Mumbai), be a good ground for assuming jurisdiction under section 263. In these circumstances, 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 the assessee may have been incorrect, but right now that is not the issue before us. The Assessing Officer decided not to reject the claim, admittedly after having had an opportunity to peruse the detailed submissions, and this stand by itself cannot imply that there was no application of mind. It is well-settled in law that when As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , excess consideration over and above the excess of assets over liabilities is a goodwill which is an asset entitled for depreciation under section 32. As such, Assessing Officer is justified in granting the depreciation on goodwill while completing the assessment under section 143(3) and CIT is not justified in invoking of provisions of section 263 on this issue. Further, the provision of section 263 could be invoked by the CIT if the circumstances specified therein viz., (1) the order is erroneous (2) by virtue of the order being erroneous, prejudice has been caused to the interest of the Revenue, exist. For invoking the provision section 263, both the conditions precedent for exercising the jurisdiction are conjunctive or not disjunctive. In the instant case, the Assessing Officer followed one course of action which is permitted by law and that resulted in loss to the Revenue, that cannot be said erroneous so far as prejudicial interest of the revenue......... 19. In CLC Global Ltd. s case ( supra ), it has been held as under : 6. We have heard the parties and perused the material on record. The issue is as to whether the depreciation claimed on goodwill has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with section 32(1) of the Act. These are definitely depreciable assets and depreciation has to be allowed thereon. 20. Bearing in mind the provisions of section 263 read with section 32(1) of the Act in the light of the interpretation of the Hon ble Apex Court and the decisions of the Tribunal supra, if one turns to the order of the ld. CIT, passed under section 263 of the Act, it would be clear that no finding is recorded by the revisional authority to show as to how the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Merely because according to the revisional authority the approvals/registrations etc., amounts to intangible assets was not examined by the Assessing Officer and the Assessing Officer has not applied his mind with respect to the examination and verification regarding allowability of depreciation of assets claimed as intangible assets does not mean that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. It is not the case of the revisional authority that no depreciation is allowable on such items of intangible assets or the depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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