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Facts
The Principal CIT initiated revisional proceedings under Section 263 for AY 2018-19, regarding the assessee's claim of depreciation on goodwill. The assessee, Unique Mercantile India Ltd. (UMIL), claimed ₹57.11 crores depreciation on goodwill, treating it as a building asset at 5% following an amalgamation. The AO had disallowed this depreciation in AY 2017-18 but allowed it in AY 2018-19 without proper inquiry, despite no change in facts, leading the PCIT to find the assessment order erroneous and prejudicial to revenue.
Held
The Tribunal upheld the PCIT's revisional order, finding that the principle of consistency was not applicable as the depreciation on goodwill was disallowed in the immediate preceding year, and no new facts justified its allowance in the current year. The AO's failure to disallow the claim without inquiry rendered the assessment order erroneous and prejudicial to the interest of the Revenue.
Key Issues
Whether the PCIT was justified in invoking Section 263 to revise an assessment order allowing depreciation on goodwill, and whether the principle of consistency applies when depreciation was disallowed in the previous year but allowed in the current year without change in facts.
Sections Cited
263, 143(3), 148, 32, 43(1)
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2018-19) Unique Mercantile India Ltd., Vs. Principal Commissioner of 2nd Floor, Unique House, Opp. Income Tax, Union Bank, Ashram Road, Ahmedabad-3, Ahmedabad-380009 Ahmedabad [PAN No.AADCP8435E] (Appellant) .. (Respondent) Appellant by : Shri Vartik Chokshi, AR Respondent by: Shri Rignesh Das, CIT-DR Date of Hearing 22.07.2025 11.08.2025 Date of Pronouncement O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad-3, vide order dated 23.02.2024 passed for A.Y. 2018-19.
The assessee has raised the following grounds of appeal:
“1. In law and in the facts and circumstances of the Appellant's case, the Id. PCIT grossly erred in not appreciating that in order to invoke section 263 of the Income Tax Act, 1961 (for short "the Act") two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the Appellant's case, Id. AO has passed the assessment order after analy/ing all primary details and therefore there was no error in the impugned assessment order so as to justify action u/s 263 of the Act. In the case of Appellant, the very assumption of power u/s 263 of the Act is unjustified and bad in law and therefore, order u/s 263 of the Act deserves to be quashed.
2. In law and in the facts and circumstances of the Appellant's case, the Id. PCIT has grossly erred in assuming jurisdiction u/s 263 of the Act on the erroneous ground that the impugned assessment order u/s 143(3) of the Act dated 07-04-2021 is erroneous in so far as it is prejudicial to the interest of the revenue on the ground that Id. Assessing Officer has not made inquiries with reference to claim of depreciation on goodwill and issue of escapement of income with respect to transaction reflecting in the PAN of amalgamating company (Unique mercantile India Private Limited, for short "UMIPL"), when the primary details was already provided and the claim of depreciation is apparent from records.
In law and in the facts and circumstances of the Appellant's case, the Id. PCIT has exceeded her jurisdiction by directing the AO to examine the valuation of goodwill which pertains to AY 2017-18 being earlier year and not year under consideration for deciding the claim of depreciation for year under consideration. Thus, the order passed u/s 263 of the Act is void and deserve to be quashed.
4. In law and in the facts and circumstances of the Appellant's case, the Id. PCIT has grossly erred in assuming jurisdiction u/s 263 of the Act, merely on account of difference of opinion when AO has followed one of the probable legal opinion which under no circumstances can be considered as erroneous or prejudicial to the interest of revenue 5. In law and in the facts and circumstances of the Appellant's case, the Id. PC1T erred in not appreciating the fact that the goodwill under consideration represent actual consideration paid over the value of assets taken over from amalgamating company and is an intangible asset which comes within the definition provided u/s.32 r.w.s.43(l) of the Act.
In law and in the facts and circumstances of the Appellant's case the Ld. PCIT has neglected that this being the second year of amalgamation and that in the maiden year the Id. Assessing Officer has not found any error to the books of account and thus it was the fishing inquiry based on the SFT details reported on the non-existing company whose PAN was not cancelled by her Department. More so, when twice the Assessing Officer had accepted the returned income that inter- alia includes the allegation of Rs. 20,92,49,727/- accepted that there is no escapement of income vide Assessment Order dated 07-04-2021. Thus, not considering the same results into arbitrary passing of the order thus such order deserves to be quashed.
7. In law and in the facts and circumstances of the Appellant's case, the Id. PCIT has further erred in law in not coming to any conclusion and without conducting any inquiry or investigating the issue, merely has directed the AO to frame the assessment order afresh by stating that Appellant has claimed depreciation on goodwill, which stands accepted when there being no positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of the Id. PCIT is without jurisdiction and illegal and hence deserves to be deleted.
8. In law and in the facts and circumstances of the Appellant's case, on the facts and in the circumstances of the case, the Id. PCIT erred in directing Assessing Officer for making disallowance of depreciation on goodwill amounting to Rs.57,11,17,504/- 9. In law and in the facts and circumstances of the Appellant's case the Id. PC1T has ignored that SFT information of Rs. 20,92,49,727/- was already available with the departmental record and more over the reassessment proceeding was pending still the Ld. PC1T choose to invoke 263 proceeding was duplication and establishes that entire proceeding is being carried out Unique Mercantile India Ltd. vs. PCIT Asst.Year –2018-19 - 3– mechanically and directing to set-aside the concluded proceeding is void and deserves to be deleted.
In law and in facts and circumstances of the case of Appellant, the Id. PC1T based on the impugned SFT information has made a futile attempt to reopen the proceeding with an only reason for making disallowance of goodwill which stands accepted twice by the Faceless Assessing Officer of NFAC and was accepted by the AO. Once the books of account in the year of amalgamation is accepted without any adverse view then in every subsequent year the Department cannot seek to assess whether the financial transaction reported is incorporated or not. Moreover, when it is not an event referable to the year in question. Once the books get merged on the appointed date then every transaction thereafter forms part of the amalgamating company and that internal department reporting cannot be the basis to set-aside a concluded assessment and thus the action of the Id. PCIT is void and deserves to be quashed.
The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal
either before or during the course of hearing of the appeal.”
3. The brief facts of the case are that the Principal Commissioner of Income Tax (Principal CIT) passed a revisional order under section 263 of the Income Tax Act, 1961 (Act). On analysis of the case records, Principal CIT noted that Unique Mercantile India Pvt. Ltd. (UMIPL) had amalgamated with Unique Hyderabad Hotel Project Pvt. Ltd. (UHHPPL), which was later renamed UMIL, with effect from 1st April 2016, as per an NCLT order dated 16th November 2017. During the relevant year (AY 2018-19), UMIPL had carried out financial transactions worth ₹20.92 crores but had not filed its income tax return. Since UMIPL no longer existed post-amalgamation, the responsibility of disclosing and offering this income to tax fell on UMIL. However, no clarity was found in the assessment records as to whether or how this income was offered to tax. Further, the Principal CIT observed that UMIL had recorded goodwill of ₹1202.35 crores in its books following the amalgamation and had claimed depreciation of ₹57.11 crores in AY 2018-19 at 5%, by incorrectly treating the goodwill as a depreciable building asset in its return. However, in the immediately previous assessment year (AY 2017-18), the same depreciation claim was disallowed by the AO. The Principal CIT pointed out that there was no new basis or change in facts Unique Mercantile India Ltd. vs. PCIT Asst.Year –2018-19 - 4– that could justify allowing the depreciation claim in the subsequent year, and the AO had failed to disallow it again, leading to an underassessment of income. The assessee, in response to the show cause notice under section 263 of the Act, submitted that the issue of ₹20.92 crore had already been examined in the reassessment proceeding under section 148 of the Act and that the reassessment had concluded with no additions, as per the order passed by the National Faceless Assessment Centre. However, Principal CIT rejected this line of argument. Principal CIT held that the AO did not ask any relevant questions or verify the basis of the depreciation claimed by the assessee during the assessment for AY 2018-19, even though a similar claim had already been disallowed in the immediately previous year and was pending appeal. The Commissioner highlighted that merely showing depreciation in the computation of income does not imply that the AO has applied his mind to the issue. Moreover, Principal CIT noted that by claiming depreciation @ 5% under the block for “Buildings” was inconsistent with the nature of the asset (being goodwill), which clearly demonstrated that the assessee itself was not confident in its claim. The reliance placed by the assessee on various judicial precedents was distinguished by Principal CIT by pointing out that depreciation on goodwill, while allowed in some cases on the principle of consistency, was actually not upheld on merits by higher judicial forums. Therefore, the principle of consistency could not be used where depreciation had already been disallowed in the first year and was under appeal. Accordingly, the Principal CIT held that the AO's failure to disallow the depreciation on goodwill, despite having disallowed it in the earlier year and despite no change in facts, made the assessment order for AY 2018-19 both erroneous and prejudicial to the interest of the Revenue.
The assessee is in appeal before us against the order passed by Principal CIT setting aside the assessment order as being both erroneous and Unique Mercantile India Ltd. vs. PCIT Asst.Year –2018-19 - 5– prejudicial to the interest of the Revenue. Before us, the primary argument of the Counsel for the assessee was that in succeeding assessment year’s the claim of depreciation had not been disputed by the Department. Accordingly, in view of the principles of consistency, Principal CIT was precluded from initiating proceedings u/s 263 of the Act. In response, the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order.
We have heard the rival contentions and perused the material on record. The argument of the assessee based on the principle of consistency cannot be accepted in the present case. It is an admitted fact that in the immediately preceding assessment year, i.e., AY 2017-18, the claim of depreciation on goodwill was examined and disallowed by the AO. That disallowance was based on the same facts and grounds as applicable in AY 2018–19, as well. There is no material on record to show that the facts had changed in the present year or that there was any new justification for allowing the claim of depreciation. Therefore, the principle of consistency, which is generally invoked in cases where a claim has been accepted in the past without objection and continues without change, is not applicable here. In fact, the position is reversed - the depreciation was disallowed in the first year and the same claim was again made in the next year without any new basis, but the AO failed to disallow it again. That failure on the part of the AO, without any inquiry or reasoning, clearly makes the assessment order erroneous and prejudicial to the interest of the Revenue. We find no merit in the argument that because depreciation was allowed in subsequent years, it should have been allowed in the current year as well. The allowance of an incorrect claim in a later year cannot be used to justify the non-disallowance in an earlier year when the facts and legal position have remained the same. Moreover, as rightly noted by the Principal CIT, the fact that the goodwill was shown under the block of “Building” at a depreciation rate of 5%, when Unique Mercantile India Ltd. vs. PCIT Asst.Year –2018-19 - 6– it is admittedly an intangible asset (if at all allowable), further reinforces that the AO had not properly examined the claim.
6. In view of the above, we are of the considered opinion that the Principal CIT was fully justified in invoking the provisions of section 263 of the Act. Once depreciation on goodwill was disallowed in the earlier year and there was no change in facts or legal position, the AO should have disallowed the claim again in AY 2018-19. His failure to do so without any inquiry renders the assessment order erroneous and prejudicial to the interests of the Revenue.
Accordingly, we uphold the revisional order passed by the Principal CIT under section 263 of the Act, and the appeal filed by the assessee is dismissed.
In the result, the appeal filed by the assessee is dismissed. This Order pronounced in Open Court on 11/08/2025
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 11/08/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,