TMI Blog2011 (7) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... s holding company - Held that:- Pursuant to the approval by the Board of Directors at its meeting held on 28-1-2004, and approval by the Board of Directors of McDowell Alcobev Private Ltd. (Formerly McDowell Alcobev Limited) at its meeting held on 27th January, 2004, the Company has filed a petition in the Hon'ble High Court of judicature at Chennai for merger of the Company, with the holding company McDowell Alcobev Private Ltd. with effect from 1st July, 2002 which is pending admission by the court. Consequently, no effect of the merger/operations has been given in preparing the accounts of the company. Thus keeping in view the explanation of the assessee, incorporated hereinabove, which could not be found to be false either by the AO or CIT, the reasoning given by the CIT in his revisional order cannot satisfy the test laid down under section 263. Depreciation on Trade marks and Licences - Held that:- When the Assessing Officer has not allowed the claim of depreciation on intangible assets, there cannot be any prejudice caused to the interests of the Revenue. No prejudice could be shown by the Revenue in this regard during the hearing - Hence, there is no question of any fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Inertia limited has been referred to BIFR for complete erosion of its net worth. (iii) The Assessing Officer has added depreciation claimed on intangible assets being trade marks and licences merely stating 'I am of the view that assessee's explanation is not acceptable' without examining the agreements, dates of acquisition of the intangible assets, actual payments, if any, made for the same, method of valuation of these trade mark and licences etc. He failed to conduct full fledged enquiry on these transactions. (iv) The assessee-company claimed to have filed a petition before the Madras High Court for merger of the company with its holding company with effect from 1-7-2002. Assessing Officer failed to examine the petition and its status. If the merger had actually taken place and approved with effect from 1-7-2002, the determination and allowance of losses in this case would be incorrect as the income/loss should be considered only in the case of the amalgamated company." 3. The assessee replied to this notice vide letter dated 24-3-2009 in the form of written submission. After considering the written submission, the ld. CIT has revised the assessment order by setti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with the Holding Company have not been filed" and as such he is entitled to set aside an order of assessment under section 263 of the Income-tax Act with the following direction:- "I therefore, set aside the issue to the Assessing Officer who shall call for the assessee's account copy . And if confirmed that interest has been charged as claimed in the assessee's return, he shall accept the claim of the assessee, otherwise make necessary modifications." 8. The Learned Commissioner of Income-tax erred with regard to "Service Charges paid to United Breweries Limited and Inertia Ltd.," by observing that the Assessing Officer has not verified as to whether the "assessee has actually manufactured the number of beer cases for which payment is claimed" and erred in observing further under the guise of direction as under:- "I therefore set aside the issue to the Assessing Officer to call for the agreements and determine the actual quantum of cases manufactured with reference to the amount paid. If the agreement is for transfer of know how or brand use, though camouflaged as service charges, the Assessing Officer shall allow only such allowance as admissible for acquisition of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well in section 263. As order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that it contemplated under section 263 is the prejudice to the Income-tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under section 263 may be summarized below: (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled. (ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quest of the assessee-company. The assessee had appended a note to the accounts on this issue stating therein that in view of the weakened financial conditions and the impending merger of the company with its holding company, McDowell Alcobev Private Ltd., the Board of Directors of the company requested the holding company not to charge interest on monies borrowed from them. The Board of Directors of the holding company at their meeting held on 27-1-2004, accorded approval to the request made by the assessee-company. In Schedule 17 which is regarding Interest and Finance Charges, the interest on Fixed Loan for the year ended 31-3-2004 is NIL. The contention of the ld. CIT that the Assessing Officer has not ascertained the effective date from which the interest was not charged and whether the interest charged in the accounts for the earlier years had also been written off. The ld. CIT has given further direction to the Assessing Officer to carry out verification regarding this fact. 6. The ld. CIT/DR Shri P.B. Sekaran has initially relied on the order of the ld. CIT in this regard. 7. After considering the rival submissions, we find with reference to pages 6 7 of the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trade Marks and Licences are intangible assets. The assessee has claimed this depreciation as per Part B (intangible assets) of Appendix 1 of the Income-tax Rules read with rule 5 and section 32 of the Income-tax Act. The Assessing Officer has not allowed the claim made and disallowed the depreciation. In that view of the matter, the above facts remained uncontroverted by the Revenue, how this can be made a ground to revise the assessment order in question when the Assessing Officer himself has not allowed this claim of depreciation on intangible assets. When the Assessing Officer has not allowed the claim of depreciation on intangible assets, there cannot be any prejudice caused to the interests of the Revenue. No prejudice could be shown by the ld.DR in this regard before us during the hearing. Hence, there is no question of any further verification on this issue. 11. The next issue is regarding service charges paid to United Breweries Ltd and Inertia Industries Ltd. The assessee-company had bottling arrangements with United Breweries Ltd and Inertia Industries Ltd enabling it to bottle and sell their brands of beers in Tamil Nadu. As per this arrangement entered into with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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