CPL HOLDINGS LLP (SUCCESSOR TO CPL HOLDINGS PRIVATE LIMITED),AHMEDABAD vs. THE PR. CIT, AHMEDABAD-3, AHMEDABAD

The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2018-19 on 09.10.2018 declaring total loss of Rs.27,52,15,688/-. The case was selected for limited scrutiny on the issue of investment in intangible assets. In the course of assessment, the Assessing Officer found that the intangible assets were generated as an outcome of IRM Brands Pvt. Ltd. (transferor company) being amalgamated with CPL Holdings Pvt. Ltd. (assessee company). It transpired that the goodwill of Rs.161,04,63,611/- was generated in the process of this amalgamation. The Assessing Officer further noticed that the transferor company IRM Brands Pvt. Ltd. was set up only eleven months prior to amalgamation and had Nil turnover during the year. Therefore, he doubted the generation of such huge amount of goodwill pursuant to amalgamation. The Assessing Officer had also given a finding that the valuation of goodwill was not correct and, therefore, the depreciation claimed on goodwill was disallowed and accordingly an addition of Rs.10,89,82,058/- was made by the Assessing Officer. The assessment was completed under Section 143(3) of the Act on 12.04.2021 at total loss of Rs.16,62,33,630/-. 2.1 Subsequently, the case record was called for and examined by the Ld. PCIT. He found that the depreciation on goodwill claimed by the assessee was Rs.27,36,20,888/-, whereas the Assessing Officer had made disallowance of depreciation of goodwill of Rs.10,89,82,058/- only in the assessment order passed u/s 143(3) of the Act. The Ld. PCIT, therefore, held that the order of the Assessing Officer passed u/s 143(3) of the Act was erroneous and prejudicial to the interest of revenue. 3. Aggrieved with the order of the Ld. PCIT, the assessee is in appeal before us. The following grounds have been taken by the assessee in this appeal: - “1. On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income-tax, Ahmedabad-3 ("Ld. PCIT") erred in passing order dated 22 March 2024 ("Revisionary Order") under section 263 of the Income-tax Act, 1961 ("IT Act") on a non-existent company and thus, the impugned Revisionary Order is bad in law and deserves to be set aside. 2. On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in initiating revisionary proceedings under section 263 of the IT Act against the non-existent company which was succeeded to the Appellant. 3. On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in holding that the assessment order dated 12 April 2021 ("Original Assessment Order") passed by the National e-Assessment Centre, Delhi ("Ld. AO") under section 143(3) r.w.s 143(3A) & 143(3B) of the IT Act was 'erroneous' and 'prejudicial' to the interests of the revenue and consequently, setting aside the same. 4 On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in holding that depreciation on goodwill claimed by the Appellant was not allowable under section 32 of the IT Act. 5. On the facts and in the circumstances of the case and in law, the Ld. PCIT erred in setting aside the Original Assessment Order and directed the Ld. AO to pass a de novo assessment in consequence to the impugned Reversionary Order. All of the above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, amend, delete all or any of the grounds of appeal before or at the time of hearing.” 4. Shri S. N. Soparkar, Ld. Sr. Counsel submitted that the issue of goodwill was examined by the Assessing Officer in the course of assessment and only thereafter disallowance of Rs.10,89,82,058/- was made by the Assessing Officer. He submitted that when the matter was duly examined by the Assessing Officer and a conscious decision was taken to disallow the depreciation on goodwill, the order of the AO cannot be held as erroneous and prejudicial to the interest of revenue. He submitted that if there was a mistake in the figure of depreciation as disallowed by the Assessing Officer, that was subject matter of simple rectification u/s 154 of the Act and no revisional order under Section 263 of the Act could have been passed on such an issue. The Ld. Sr. Counsel disputed the addition as made by the AO and submitted that the depreciation on goodwill was admissible in view of judgement of Hon’ble 302). The Ld. Sr. Counsel also relied upon the decision of Co-ordinate Bench of this Tribunal in the case of Aculife Healthcare (P.) Limited in ITA No.304/Ahd/2020 dated 14.10.2022 which was upheld by the juri ictional High Court as reported in 155 taxmann.com 283 (Gujarat). The Ld. Sr. Counsel submitted that when the addition made by the AO itself was wrong, no revisional order u/s 263 of the Act was justified in respect of such wrong addition. He also placed reliance on the decision of Co-ordinate Bench of this Tribunal in the case of Dasrathsinh Ghanshyamsinh Chudasama in ITA No.223/Ahd/2021 dated 08.08.2024 5. Per contra, Shri Sher Singh, Ld. CIT-DR submitted that the order of the Assessing Officer was certainly erroneous and prejudicial to the interests of the revenue for the reason that the Assessing Officer had made disallowance of Rs.10,89,82,058/- only in respect of depreciation on goodwill, whereas the amount/depreciation on goodwill claimed by the assessee was to the extent of Rs.27,63,20,888/-. He submitted that the provision of the Act does not preclude the PCIT to exercise juri iction under Section 263 of the Act in respect of any mistake which is apparent from record and which could be rectified also under Section 154 of the Act. He further submitted that the merit of the addition cannot be adjudicated in the present proceeding, as the appeal filed by the assessee against the quantum addition was already pending before the Ld. CIT(A). 6. We have considered the rival submissions. The assessee has not disputed the fact that the depreciation on goodwill claimed in the return of income was to the extent of Rs.27,63,20,888/-. The Assessing Officer in the order under Section 143(3) of the Act had disallowed the depreciation on goodwill as claimed by the assessee but in the computation of income he had made addition of Rs.10,89,82,058/- only. Thus, there was mistake in the order of the Assessing Officer in respect of quantum of addition on account of depreciation on goodwill. The fact that there was an error in the assessment order in respect of quantum of addition, has also not been disputed by the assessee. Thus, the fact that the order of the AO was erroneous and prejudicial to the interest of revenue has not been disputed. The contention of the assessee is that this was only a mistake apparent from record and should have been subjected to rectification proceeding under Section 154 of the Act. Reliance has been placed in this regard on the decision of Co-ordinate Bench of this Tribunal in the case of CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 6 of 8