NTC LOGISTICS INDIA [P] LTD,CHENNAI vs. PCIT, CHENNAI

By way of this appeal, the assessee assails the invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Chennai-4 (Pr. CIT) vide impugned order dated 30-03-2022 in the matter of an assessment framed by Ld. AO u/s.143(3) of the Act on 18-12-2019 accepting the returned income of the assessee. The grounds taken by the assessee are as under:-

The order passed by Ld PCIT, erred in not appreciating the facts and legal position and therefore not maintainable.

Ld PCIT is into some sort of enquiring basis, it is not a fool proof of finding that the Original Assessment Order passed by the Ld AO is "erroneous" or order is "prejudicial to the interest of the revenue".

The Ld. AR advanced arguments supporting the case of the assessee. Reliance has been placed on many judicial decisions to support the submissions that the depreciation would be admissible on goodwill. The copies of the same have been placed on record. The Ld. AR also submitted that the assessment was framed with due application of mind. The Ld. CIT-DR, on the other hand, submitted that the impugned issue as flagged by Ld. Pr. CIT was not examined by Ld. AO during the course of original assessment proceedings and therefore, 3 jurisdiction u/s 263 was validly exercised. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Revisionary Proceedings 3.1 The Ld. Pr. CIT, in the revisionary order, noted that the assessee had undergone a scheme of amalgamation effective from 01-04-2016 with the approval of Hon’ble NCLT. As per the scheme, there was demerger of logistic business of the assessee into NTC consultancy Services P. Ltd. (NTC-CSPL) which subsequently got merged with the assessee. The merger of NTC-CSPL resulted into transfer of assets and liabilities as per scheme giving rise to goodwill of Rs.138.54 Crores. On this amount, the assessee claimed depreciation @25%. The Ld. Pr. CIT further noted that claim of depreciation arises on account of slump sale by way of payment of actual consideration and hence depreciation claim is provided on it treating it as a capital asset. However, sixth proviso to Sec.32(1) restrict the claim of depreciation and provide that such claim as allowable to the successor and predecessor shall not exceed the deduction calculated at prescribed rates if amalgamation had not taken place. In the present case, the goodwill did not exist in the hands of the amalgamating company and therefore, the corresponding value was zero which was to be adopted in computing the depreciation allowance. Further, the Explanation 7 to Sec. 43(1) provide that where any capital asset is transferred by the amalgamating company to amalgamated company and the amalgamated company is an Indian company, the actual cost of transferred asset to the amalgamated company shall be taken to the same as it would have been if the amalgamating company 4 had continued to hold the capital asset for the purpose of its business. The goodwill that had arisen is on account of revaluation of assets which is notional. Therefore, the same has to be excluded from the value of fixed assets which would be eligible for depreciation. Hence the claim made by the assessee was held to be incorrect as held by Bangalore Tribunal in United Breweries Ltd. for AY 2008-09 considering the decision of Hon’ble Supreme Court in the case of Smiff Securities Ltd. 3.2 The Ld. Pr. CIT further noted that Ld. AO failed to undertake even an attempt to examine the correctness of the claim of the depreciation allowance. An incorrect allowance has been allowed which is prejudicial to the interest of the revenue. The order was passed without making due enquiries or a verification which should have ordinarily been made. The order was passed allowing excessive relief without enquiring into the correctness of the claim. Accordingly, the assessee was put to show- cause notice. 3.3 The assessee submitted that goodwill represents actual consideration paid over the value of assets taken over from amalgamating company and the same is an intangible asset. Accordingly, the same is eligible for depreciation. Alternatively, the claim would be fully allowable u/s 37(1). 3.4 The assessee further submitted that the scheme was combination of demerger of business of assessee into NTC-CSPL on a slump sale basis and amalgamation of that entity with the assessee. The amalgamation was in accordance with AS-14 Accounting for Amalgamation issued by ICAI.

We find that as per the provisions of Section 263 of Income Tax Act, 1961, the revenue authorities namely Pr. Commissioner of Income Tax / Commissioner of Income Tax is vested with the supervisory powers of suo-motu revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied-(i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue - recourse cannot be had to Section 263 of the Act as held by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT [243 ITR 83 10/02/2000]. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT (supra) has held that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income- tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to 7 the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. As a natural corollary, when no view has been taken by Ld. AO, this would be a case where twin conditions of Sec.263 would get satisfied. In the present case, as noted by us in preceding para, no view has been taken by Ld. AO on the impugned issue. Even, no query has been raised in this regard. Therefore, the prescribed conditions to invoke jurisdiction u/s 263 have duly been satisfied.

The Ld. AR has cited certain decisions to support the case of the assessee on merits. However, at this juncture, we are concerned to examine the validity of revisionary proceedings and nothing more. It could also be observed that it is not a case of simple slump sale but a case of demerger followed by merges of same entity. The factual matrix of the issue needs to be brought on record to properly adjudicate the impugned issue.

Therefore, considering the facts and circumstances of the case, the impugned revisionary jurisdiction could not be interfered with. However, our aforesaid adjudication would not be construed as any expression on the merits of the case. The assessee is free to advance any argument as well as rely on various case laws before lower authorities to support its case.

The appeal stands dismissed. Order pronounced on 8th September, 2023 (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा56 / VICE PRESIDENT लेखा सद8 / ACCOUNTANT MEMBER 8 चे:ई Chennai; िदनांक Dated : 08-09-2023 DS आदेशकीAितिलिपअ%ेिषत/Copy of the Order forwarded to : 1.अपीलाथ"/Appellant2.""यथ"/Respondent 3. आयकर आयु"त/CIT 4."वभागीय ""त"न"ध/DR 5.गाड" फाईल/GF