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Facts
The assessee claimed depreciation on goodwill arising from an amalgamation. The Assessing Officer (AO), during assessment under Section 143(3), partially disallowed the claimed depreciation. Subsequently, the PCIT initiated revisionary proceedings under Section 263, deeming the AO's order erroneous and prejudicial to revenue because a higher amount of depreciation on goodwill was claimed than what was disallowed.
Held
The tribunal upheld the PCIT's order under Section 263, affirming that PCIT's jurisdiction under Section 263 is not precluded even if the error could have been rectified under Section 154 or Section 147. It also clarified that the merits of the depreciation disallowance itself were pending before the CIT(A) in a separate quantum appeal and should not be adjudicated in this appeal against the Section 263 order.
Key Issues
Whether the PCIT validly exercised revisionary powers under Section 263 when the Assessing Officer had only partially disallowed depreciation on goodwill, and whether such an error could only be rectified under Section 154.
Sections Cited
263, 143(3), 143(3A), 143(3B), 154, 147, 32
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax, Ahmedabad-3 (in short “the PCIT”) dated 22.03.2024 passed in his revisionary jurisdiction under Section 263 of the of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (A.Y.) 2018-19.
(Assessment Year: 2018-19) CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 2 of 8 2. 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. Accordingly, the impugned order under Section 263 of the Act was passed by the Ld. PCIT, whereby the order under Section 143(3) dated 12.04.2021 was set aside with a direction to the Assessing Officer to pass fresh order after making correct addition of depreciation on goodwill.
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.
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.
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.”
(Assessment Year: 2018-19) CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 4 of 8 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 Supreme Court in the case of CIT vs. Smifs Securities Limited, (348 ITR 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 dated 14.10.2022 which was upheld by the jurisdictional 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 dated 08.08.2024 in support of the contention that if mistake can be rectified under Section 154 of the Act, then the provisions of Section 263 of the Act cannot be invoked.
(Assessment Year: 2018-19) CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 5 of 8 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 jurisdiction 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).
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 (Assessment Year: 2018-19) CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 6 of 8 Dasrathsinh Ghanshyamsinh Chudasama (supra). It is found that no error was pointed out by the Ld. PCIT in that case in the assessment order and the mistake was only in calculation of tax. In the present case, however, there is a mistake in the assessment order itself. Thus the facts of that case are found to be different and the said ratio can’t be applied to the facts of the present case.
6.1 The provision of Section 263 of the Act does not preclude the PCIT to exercise his jurisdiction in respect of an error which is apparent from record and could also be subject to rectification under the provisions of Section 154 of the Act. When the case record is called for and examined by the PCIT, any error in the order noticed by him which is prejudicial to the interest of revenue, is subject matter of his revisionary jurisdiction under Section 263 of the Act. Merely because such an error can also be rectified under other provisions viz. u/s 147 or u/s 154 of the Act, does not take away the inherent jurisdiction of the PCIT. Once having noticed the mistake, it is incumbent upon the PCIT to pass order u/s 263 of the Act and issue necessary direction to the AO. Therefore, the plea of the assessee that the Ld. PCIT could not have passed order under Section 263 of the Act in respect of a mistake apparent from record which could be rectified under Section 154 of the Act, cannot be accepted. We cannot preclude the Ld. PCIT from exercising his jurisdiction under Section 263 of the Act, given as per the statute. The only relevant aspect which needs to be examined is whether the order of the Assessing Officer was erroneous and prejudicial to the internet of the revenue. In the present case the Assessing Officer had wrongly disallowed the depreciation on goodwill of Rs.10,89,82,058/-; as against the claim of Rs.27,63,20,888/- made by the assessee. Therefore, the order of the Assessing Officer was (Assessment Year: 2018-19) CPL Holdings LLP (Successor to CPL Holdings Pvt. Ltd.) vs. PCIT Page 7 of 8 not only erroneous but also prejudicial to the interests of the revenue and the Ld. PCIT had rightly exercised his jurisdiction u/s 263 of the Act.
6.2 As regarding the contention of the assessee that no disallowance in respect of the depreciation on goodwill was called for in view of the judgement of Hon’ble Supreme Court in the case of Smifs Securities Limited (supra), this aspect can be examined in the course of regular appeal against the quantum addition made by the Assessing Officer. The assessee has already filed an appeal against the addition as made by the Assessing Officer, which is pending before the ld. CIT(A). If we adjudicate the merit of addition in the present appeal filed by the assessee against the order under Section 263 of the Act, we will be pre-empting the Ld. CIT(A) from taking a decision on this issue in the quantum appeal, which is not desirable. The merit of addition is required to be decided only in the appeal against quantum addition and not in the present appeal.
6.3 In view of the facts discussed as above, we do not find any merit in the grounds taken by the assessee. Accordingly, the order of the Ld. PCIT is upheld and the grounds taken by the assessee are rejected.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on this 8th October, 2025.