EAST WEST HANDLING AND DISTRIBUTION PRIVATE LIMITED,SOUTH CITY, BANNERGHATTA ROAD, BENGALURU vs. INCOME TAX OFFICER, WARD 2(1)(4), BENGALURU

PER WASEEM AHMED, ACCOUNTANT MEMBER:

This appeal has been filed by the assessee against the order of the Ld. CIT(A) passed u/s 250 of the Act dated 13.11.2025 for the assessment year 2016-17.

ITA No.265/Bang/2026 Page 2 of 11 2. The assessee in the memo of appeal has raised 06 grounds of appeal, which we for the sake of brevity and convenience are not inclined to reproduce here. 3. At the outset, we note that ground No. 1 is general in nature and does not call for any fresh adjudication. Hence, the same is dismissed as general.

5.1 The AO later noticed that, while the cost of goodwill had been disallowed the depreciation claimed on that goodwill had mistakenly been allowed in the assessment framed under section 143(3) of the Act. Recognizing this error apparent on record, the AO issued an order under section 154 of the Act, disallowing depreciation of ₹16,25,000 on goodwill. Aggrieved by the rectification order, the assessee preferred an appeal before the Ld. CIT(A).

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ITA No.265/Bang/2026 Page 3 of 11 5.2 The assessee before the Ld. CIT(A) argued that the AO made a mistake in issuing the rectification order under section 154 of the Act by disallowing depreciation of ₹16,25,000 on goodwill. Assessee pointed out that the goodwill of ₹65,00,000 had already been added back by the assessee when calculating total income in the return of income. Thus, the AO effectively made a double addition in the assessment order issued under section 143(3) of the Act. The assessee further noted that since it had already disallowed the amount of goodwill, there was no obvious error in the record that would justify a rectification under section 154 of the Act. Therefore, assessee requested that the rectification order be quashed and the addition made be deleted.

5.3 The Ld. CIT(A) noted that the assessment was originally completed under section 143(3) of the Act, where the AO disallowed goodwill of ₹65,00,000. After realizing that depreciation on this goodwill had mistakenly been allowed, the AO corrected the assessment under section 154 of the Act by disallowing depreciation of ₹16,25,000. The Ld. CIT(A) found from the return of income that the assessee had already added back the goodwill of ₹65,00,000 in its income computation. This meant the AO had effectively made a double addition of the same amount in the assessment order. However, since this addition occurred in the original assessment order under section 143(3) and not in the rectification order under section 154 of the Act, the issue was deemed outside the scope of the current appeal.

5.4 The Ld. CIT(A) further held that once the goodwill itself was not allowable, the assessee was not entitled to depreciation thereon and the AO was justified in invoking section 154 of the Act to disallow the

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ITA No.265/Bang/2026 Page 4 of 11 depreciation of ₹16,25,000 as a mistake apparent from the record. Accordingly, the rectification order was upheld and the appeal was dismissed. 6. Aggrieve by the order of the Ld. CIT(A), the assessee filed an appeal before us.

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ITA No.265/Bang/2026 Page 5 of 11 submitted that once the goodwill stood disallowed in the assessment order, its Written Down Value became Nil and, consequently, the assessee was not entitled to depreciation of ₹16,25,000 thereon. Thus, the allowance of such depreciation constituted a mistake apparent from the record, which was rightly rectified by the AO u/s 154 of the Act. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be upheld.

9.1 The facts are largely undisputed. While filing its ROI, the assessee had itself added back the amount of ₹65,00,000 representing the write- off of goodwill while computing its taxable income. This is evident from the computation of income placed at page 49 of the paper book. The Ld. CIT(A), after examining the ROI and the computation of income, has also recorded a categorical finding that while completing the assessment u/s 143(3) of the Act, the AO once again added the very same amount of

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ITA No.265/Bang/2026 Page 6 of 11 ₹65,00,000, resulting in a double addition. Significantly, this factual finding has not been disputed by the Revenue.

9.2 We further note from the financial statements placed before us that the goodwill of ₹65,00,000, acquired during the financial year relevant to AY 2015-16, continued to be reflected as an intangible asset in the books of account. During the year under consideration, on account of discontinuance of the dealership business, the assessee wrote off the entire amount of goodwill in its books. Consequently, the Profit & Loss Account reflects depreciation and amortization of ₹65,27,430, comprising the write-off of goodwill of ₹65,00,000 and depreciation on computers of ₹27,430.00 only.

9.3 However, while computing its taxable income under the provisions of the Act, the assessee did not claim deduction of the aforesaid book write-off. Instead, it added back the entire amount of the write-off of goodwill and claimed depreciation of ₹16,25,000 on goodwill under the provisions of the Act. Thus, the amount of ₹65,00,000 debited to the Profit & Loss Account has already been added back by the assessee while computing its taxable income. Despite this, the AO again added the same amount while completing the assessment u/s 143(3) of the Act, thereby resulting in a double addition, as categorically found by the Ld. CIT(A).

9.4 At this stage, it would be relevant to reproduce the operative portion of the order passed by the AO u/s 154 of the Act, which reads as under: “Goodwill paid of Rs.65 lakhs disallowed. Hence WDV as on 01/04/2016 is Nil. Depreciation of Rs.16,25,000/- disallowed.”

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ITA No.265/Bang/2026 Page 7 of 11 9.5 A plain reading of the aforesaid order reveals ambiguity regarding the exact nature of the rectification carried out by the AO. The words “Goodwill paid of Rs.65 lakhs disallowed” appearing in the rectification order give an impression that the goodwill of ₹65,00,000 was itself disallowed by the AO while passing the order u/s 154 of the Act. On the other hand, the Ld. CIT(A) has proceeded on the premise that the goodwill had already been disallowed in the original assessment order passed u/s 143(3) of the Act and that the rectification proceedings were confined only to the consequential disallowance of depreciation of ₹16,25,000.00 only. Thus, the order passed u/s 154 of the Act does not clearly disclose whether the AO intended to disallow both the goodwill and depreciation thereon or merely intended to withdraw the depreciation consequent to the disallowance of the goodwill already made in the original assessment order.

9.6 We are conscious of the fact that ordinarily, in an appeal arising from an order passed u/s 154 of the Act, an assessee cannot challenge an addition made in the original assessment order passed u/s 143(3) of the Act. However, the facts of the present case cannot be ignored. The order passed u/s 154 of the Act itself employs language suggesting that the goodwill of ₹65,00,000 was being disallowed therein. Further, the Ld. CIT(A) has himself recorded a categorical finding that the assessee had already added back the said amount while computing its taxable income and that the subsequent addition made by the AO resulted in a double addition. In such circumstances, the ambiguity in the rectification order cannot operate to the prejudice of the assessee. Therefore, considering the peculiar facts of the present case and the language employed by the AO in the rectification order, we are inclined to give the benefit of such

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ITA No.265/Bang/2026 Page 8 of 11 ambiguity to the assessee. Hence, we hold that the amount of goodwill cannot be further disallowed in the rectified order passed under section 154 of the Act. Hence, we direct the AO to delete the same.

9.7 Coming to the second issue regarding the disallowance of depreciation of ₹16,25,000, we find that the assessee agrees to such disallowance made by the AO which was subsequently conformed by the ld. CIT-A. Hence, the grounds raised by the assessee are accordingly hereby dismissed.

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ITA No.265/Bang/2026 Page 9 of 11 computation of income and consequential tax demand. The assessee, therefore, prayed that the eligible brought forward business losses be allowed to be set off in accordance with the provisions of the Act.

13.1 However, we find that the Ld. CIT(A), while disposing of the appeal, did not adjudicate the aforesaid ground raised by the assessee regarding the set-off of brought forward business losses. No finding was recorded by the Ld. CIT(A) either on the availability or eligibility of the losses claimed by the assessee.

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ITA No.265/Bang/2026 Page 10 of 11 of the earlier assessment years. Accordingly, the Ld. DR submitted that the issue may be decided in accordance with law.

17.1 In our considered opinion, the claim of the assessee requires factual verification with reference to the records of the earlier assessment years. Since the issue has not been examined by the Ld. CIT(A) and the necessary facts regarding the quantum and eligibility of the brought forward losses require verification, we deem it appropriate to restore the issue to the file of the AO. Accordingly, we restore the issue to the file of the AO with directions to verify the quantum and eligibility of the brought forward business losses claimed by the assessee with reference to the records of the Department and allow the set-off thereof in accordance with law. Needless to state, the assessee shall be afforded a reasonable opportunity of being heard and shall furnish the necessary details and evidence in support of its claim. Accordingly, this ground of appeal is allowed for statistical purposes.

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ITA No.265/Bang/2026 Page 11 of 11 18. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in court on 21st day of August, 2026

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 21st August, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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