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TMI Blog2025 (5) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ext year. 3. Thereafter, the Ld. Pr.CIT in terms of notice issued on 25.02.2022 invoked the provision of section 263 of the Act and asked the assessee to show cause as to why the assessment order be not cancelled/modified as it is erroneous and pre-judicial to the interest of the Revenue as the AO has allowed the claim of depreciation of INR 21,53,41,062/- without making any enquiries in this regard. After considering the submissions of the assessee, the Ld. Pr. CIT vide impugned order has held that the assessment order passed on 20.12.2019 is erroneous in so far it is prejudicial to the interest of revenue and disallowed the depreciation claimed at INR 21,53,41,062/- on goodwill being intangible asset and direct the AO to pass a consequential effect order. 4. Against such order, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:- 1. "That on law, facts & circumstances of the case, the Worthy Pr. CIT has grossly erred in assuming jurisdiction u/s 263 even when: 1.1. The original assessment order passed u/s 143(3) does not satisfy the twin conditions of being an 'erroneous order' and 'prejudicial to the interest of revenue' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and is on account of goodwill. In the books of accounts, the said amount of goodwill is shown under the head "intangible asset under development" and no amortization was claimed in the Profit & Loss Account. However, while computing the income under the head "business and profession", the company had claimed depreciation/amortization @ 25% which comes to INR 21,53,41,062/-. The detailed working of the amount of goodwill is given in the audited financial statements in Note No.28 to Balance Sheet which is available at Paper Book page 35. The Ld. CIT(A) observed that the AO had allowed incorrect claim of depreciation without making any enquiry thus, the assessment order is erroneous and pre-judicial to the interest of the Revenue and therefore, disallowed the deprecation claimed by the assessee. 8. Before us, the Ld.AR for the assessee submitted that the assessee has purchased/acquired running division of New Spice Sales and Solutions Limited w.e.f. 01.06.2016 as a going concern under slump sale where the purchase consideration was paid at INR 86,13,64,249/- being the difference between assets and liabilities taken over and claimed as goodwill. In the financial statements, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Explanation 3(b) to S.32(1)-Appeal dismissed." 9. He also placed reliance on the certain other judgements in this regard and submitted that the Ld. Pr. CIT has invoked the provisions of Explanation-2 of section 263 to hold the assessment order as erroneous and prejudicial to the interest of revenue as AO has made no enquiry. But since depreciation on goodwill is an allowable expenditure in terms of judgement of Hon'ble Supreme court in the case of Smifs Securities Ltd therefore, there was no loss to revenue who ultimately has to allow the depreciation to the assessee. Accordingly, ld.AR requested for the cancellation of the order of Ld.Pr.CIT. He also placed reliance on various judgements which are tabulated as under:- [1] Areva T & D India Ltd. SLP(C) (CC) 21227/2012 (SC); [2] The Peerless General Finance & Investment Co.Ltd. 416 ITR 1 (SC). [3] Areva T & D India Ltd. & Ors. [2012] 345 ITR 421 (Del.HC); [4] Dabur India Ltd. [2021] 126 taxmann.com 259 (ITAT, Delhi); [5] Triune Energy Services Pvt.Ltd. 96 taxmann.com 580 (ITAT, Delhi); [6] Cyber India Online Ltd. [2013] 38 CCH 5 (ITAT, Delhi); and [7] M/s I&B Seeds Pvt.Ltd. [2022] 142 taxmann.com 274 (ITAT, Bang.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. 24. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The relevant judgment of Hon'ble Calcutta High Court in this case is also enclosed. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry." 2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) "where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified" 3. Hon'ble Supreme Court in the case of Tara Devi Aggarwals v. CIT [973] 88 ITR 323 (SC) "The words of the section 338 of 1922 Act enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: "21. We have carefully considered the rival contention and also gone through the order of the Ld. CIT u/s 263 and the order of the assessing officer passed u/s 143 (3) of the act which was subject to revision by the CIT. We have also perused the various case laws cited before us by the parties. According to section 263 of the Act, Commissioner of Income tax can resort to corrective measures by revising the assessment order passed by the Assessing Officer, if after examining records such assessment order passed by the Assessing Officer, he (the Commissioner of Income-tax) found that such an order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. In Malabar industrial Co Ltd versus CIT 243 ITR 83 (SC) Hon'ble Supreme Court held the Commissioner has satisfied of twin conditions namely (i) that the order is erroneous, (ii) that it is prejudicial to the interest of revenue. As held in several judicial precedents that Commissioner does not have power to revise the order of the Ld. assessing officer where there are two views possible and the Ld. assessing officer has taken one of the possible views. Further, where the Ld. assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A). Even otherwise, mere production of books of accounts does not make the issues before us fall in to the category of inadequate inquiry If we agree to such an argument then, in all cases where the books of accounts were produced before the Id AO, then the case would fall outside the purview ITA No. 2860/Del/2010 A Y 2005-06 PTC Impex (India) pvt. Ltd Vs. The Commissioner Of Income tax of section 263 of the act. Further No records of communication by the AO to assessee and reply by assessee to Id AO was shown to us to show on these four issues that the Assessing Officer had applied his mind on any of them. According to us case before us is of Jack of inquiry and not absence of any inquiry All judicial precedents relied up on before us related to, absence of adequate inquiry but none of them dealt with the issues of complete lack of inquiry as in case before us. Hence, we do not have any hesitation in upholding action of id CIT in invoking his jurisdiction u/s 263 of the act. Hence, order passed u/s 263 of the act by the Id CIT is upheld and appeal of the assessee is dismissed." 7. Order of Hon'ble HIGH COURT OF KARNATAKA in the case of CIT vs. Infosys Technologies Ltd. 341 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, either of his own motion or on an application by the assessee, call for the records of any proceeding under the Act. However, in section 263 the expression 'on his own motion' is absent. In the absence of such an expression and also in view of the fact that there is no restriction or limitation on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental Officer, the Commissioner could validly call for and examine the record of the assessee in the instant case for the relevant year pursuant to a letter of the Assessing Officer containing a proposal under section 263. Therefore, there was no merit in the contention of the assessee in this regard." 9. Order of Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs Addl. CIT, 99 ITR 375 "Where it is held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return and it was observed that reason is obvious. The position and functions of the ITO are very d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T has considered all the contentions of the assessee and thereafter rightly come to the conclusion that the Assessing Officer failed to consider the fact that whether the assessee is entitled for claim under Section 80IC or not in respect of the products which do not come under the ambit of Fourteenth Schedule. It can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been done by the Assessing Officer before allowing the claim u/s 80IC of the Act. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceeding's u/s 263 of the Act. The present case is covered by the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) by the virtue of the order being erroneous prejudice is caused to the interest of the Revenue. In the instant case there has been an information with the department which has been passed on to the Assessing Officer for verification and failure of the Assessing Officer to verify the transactions in the light of the information available makes the order erroneous and also prejudicial to the interest of the Revenue. The Assessing Officer has mentioned about inputs from investigation wing in assessment order but has not examined absolutely anything regarding the genuinity of the transactions. The Ld PCIT had enough material in his custody to prima facie to show that the tax which was lawfully 14 exigible has not been imposed. Similarly in the case of Sunbeam Auto the courts have held that in the case of lack of enquiry course of action under section 263 is valid. In this case on the facts of the record it can be observed that the Assessing Officer has not applied his mind regarding the allowability of the exemption of the Long Term Capital Gain. This is not the case of inadequate enquiry but is a clear case of lack of enquiry which makes it different from the case of Nirav Modi (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of inquiry" and "inadequate inquiry". If there was any inquiry, even if it was inadequate, it does not give right to the Commissioner to pass orders under section 263 merely because of a different opinion From the assessment order questionnaire it can be unequivocally held that this is a clear case of lack of enquiry. (e) The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded There are no fishing or ruin enquiries conducted by the Ld. Principal CIT nor directed the Assessing Officer to conduct such enquiries. (f) The assessee has already furnished all the documentary evidences which proves that transactions related to sale and purchase of shares are genuine There is absolute difference between enquiry calling of information, investigation and examination. From the action of the Assessing Officer it can be said that no enquiry has been conducted in this case. (g) Merely because the stock price moved sharply, the assessee is not to be 16 blamed for bogus transactions where he has purchased and sold the stocks through registered brokers and confirmed by valid contract notes as per law: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceedings u/s 263 of the Act. The present case is covered by the decision of the Hon'ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Hon'ble Supreme Court held as under: "In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed the SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the AO, simply directed the AO to carry thorough and detailed inquiry. 6.6 In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we hold that the Ld. Pr. CIT has rightly exercised his jurisdiction under section 263 of the Act in setting aside the order of the Assessing Officer being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we confirm the order of the Ld. Pr. CIT and dismiss the grounds raised by the assessee before us. 7. In the result, appeal of the assessee is dismissed." 14. Hon'ble High Court of Delhi in the case of CIT v. Ashok Logani [2011] 347 ITR 22 (Delhi) "No doubt, the order-sheet showed that the Assessing Officer had asked the assessee to explain cash found. However, whether the Assessing Officer had, in fact, gone into the issue and accepted the claim of the assessee or not was not disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the matter was not examined by the Assessing Officer. It was reasonably fit case for exercising revisionary jurisdiction under section 263. After all, the Commissioner gave another chance to the assessee to explain the source of cash. (Para 12) Once it was found that there was no proper consideration of the issue by the Assessing Officer, the very foundation of the order of the Tribunal was knocked off. Thereafter, the Tribunal had ventured to undertake the exercise by itself satisfying about the explanation tendered by the assessee which it could not do. When the Commissioner passed the orders under section 263, at that stage he was only required to find out as to whether the income had escaped assessment and the order was prejudicial to the interest of revenue. [Para 13] Since those conditions were satisfied and the matter was relegated to the Assessing Officer to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order passed by the Commissioner invoking his power under section 263 and keeping in view the scope of that provision. [Para 14] One has to keep in mind that against the orders passed by the Assessing Officer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under section 263 not vested in it. The erroneous assessment order has resulted into loss of the Revenue in the form of tax. Under the Circumstances and in the facts and circumstances of the case narrated hereinabove, the High Court has committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under section 263 of the Income-tax Act. 8. In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under section 263 of the Income-tax Act is hereby restored. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive or negative, shall be adjusted against the capital reserves. Hence, no goodwill can be recorded in books under common control transactions under Ind AS 103. It should be shown as Negative Capital Reserve." 14. It is also observed by us that the assessee has duly disclosed the working of goodwill and followed the Ind-AS therefore, it cannot be questioned that when the deprecation was not claimed in the books of accounts, the same could not be allowed in the computation of income. Once the said amount of purchase consideration is held as goodwill, the assessee is entitled for depreciation on the same. The Ld. Pr. CIT, in the show-cause notice observed that the said asset is shown under the 'intangible asset under development', thus not put to use and therefore, claim of depreciation is not proper. Since it is an intangible asset, it is not understandable how it could be put to use. The assessee has already explained that inadvertently the head was titled as 'intangible asset under development' as against 'intangible assets' and therefore, the depreciation claimed on such intangible asset is in accordance with law. 15. The Hon'ble Supreme Court in the case of Snifs Securities L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee- Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. 7. One more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that prejudice is caused to the interest of the Revenue. This legal principle is also laid down by the Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. 295 ITR 282. 19. Recently, the Hon'ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. reported in 2023 (4) TMI 295 - SC, while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of two-fold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant observations are as under:- "27. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd, (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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