HERBALIFE INTERNATIONAL PRIVATE LIMITED,BANGALORE vs. CIT, BANGALORE

2.1 The assessee, a company engaged in the business of production, through contract manufacturing, and sale of nutritional and dietary supplements for weight management and personal care, filed its return of income for Assessment Year 2008-09 on 30.09.2008 declaring total loss of Rs.3,03,76,816. The assessee ;subsequently filed a revised return on 31.3.2010 declaring total loss of Rs.3,67,17,524. The assessment was concluded under Section 143(3) r.w.s. 144C of the Act vide order dt.29.12.2012 wherein the assessee's income was determined at Rs.4,42,53,130 in view of the following additions / disallowances :- i) Capitalisation of 25% of Royalty Rs.47,64,201 ii) Doubtful debts written off Rs.1,14,05,413 iii) Transfer Pricing Adjustment Rs.5,84,60,332

Subsequently, the CIT, Bangalore-I; on examination of the records of assessment, initiated revisionary proceedings under Section 263 of the Act for Assessment Year 2008-09 by issue of show cause notice dt.26.2.2014 as he was of the view that the assessee's claim for 100% depreciation on leasehold improvements, being allowed by Assessing Officer was erroneous and prejudicial to the interest of revenue, as the assessee was entitled to depreciation thereon only at 10% as per Depreciation Rules. The assessee filed its reply to the aforesaid show cause notice vide letter dt.11.3.2014. According to the learned CIT, the Assessing Officer has neither examined nor applied his mind in respect of the allowability of the rate of depreciation on leasehold improvements. The learned CIT further observed that even though in the written Assessing Officer had examined and applied his mind to the issue at hand, it was admitted by the learned Authorised Representative vide order sheet noting dt.13.3.2014 before him that his issue was not examined by the Assessing Officer during assessment proceedings. Therefore, the learned CIT held that the order of assessment for Assessment Year 2008-09 dt.29.10.2012 is erroneous and prejudicial to the interest of revenue. 4.1 Before us, the learned Authorised Representative for the assessee submitted that the assessee furnished details called for by the Assessing Officer vide letter dt.15.7.2011; which included details of leasehold improvements carried out, invoices of interior and other related work carried out at some of the locations; sample copies of lease agreements entered into by the assessee company for some of the locations, etc. It is submitted that it is only after consideration of all these relevant details that the Assessing Officer passed the order of assessment dt.29.12.2012 for Assessment Year 2008-09. 4.2 The learned Authorised Representative further submitted that the Assessing Officer subsequently vide notice under Section 154 of the Act dt.19.8.2013 sought to rectify the order of assessment for Assessment Year 2008-09 on the ground that excess depreciation on leasehold improvements was allowed to the assessee. It is submitted that after considering the assessee's reply thereto vide letter dt.5.11.2013 challenging the validity of proceedings under Section 154 of the Act for examining an issue that was debatable and not a mistake apparent from record that no rectification under Section 154 of the Act was carried out Assessing Officer. It is contended by the learned Authorised Representative that since in rectificatory proceedings the Assessing Officer had examined the issue of allowability of depreciation on leasehold improvements, it cannot be said that the Assessing Officer has not examined the issue. 4.3 It is contended by the learned Authorised Representative that in these circumstances, it is evident that the Assessing Officer has made proper enquiries, applied his mind to the facts of the case and formed an opinion that the assessee is entitled to depreciation on leasehold improvements @ 100% and allowed the same and therefore it cannot be held that the Assessing Officer has not examined or applied his mind to the issue as observed by the ld. CIT. Therefore the assessment order of the Assessing Officer cannot be held to be prejudicial to the interests of Revenue. In support of this proposition the learned Authorised Representative placed reliance, inter alia, on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC). It was prayed that in the light of the above submission of facts and in law, the order under Section 263 of the Act be set aside / cancelled. 5.1 Per contra, the learned Departmental Representative for Revenue supported the impugned order of the ld. CIT. According to the learned Departmental Representative, a perusal of both the order of assessment and the submissions put forth by the assessee vide letter dt.15.7.2011 filed in the course of assessment proceedings, on the basis of details / documents called for by the Assessing Officer, would go to show that neither were any details called for by the Assessing Officer in respect to 100% depreciation nor was there even a whisper of this issue in the order of assessment for Assessment Year 2008-09 dt.29.10.2012, consisting17 pages, where various other issues were considered; such as capitalization of 25% of Royalty paid to Herbalife International Inc., Transfer Pricing Adjustment of ALP, Doubtful Debts written off, administrative fees. It was further pointed out that the fact that no enquiry in the matter, of the assessee's claim for 100% depreciation on leasehold improvements, was conducted by Assessing Officer is established by the admission of the AR of the assessee before the ld. CIT on 13.12.2014 in the course of revisionary proceedings. In these circumstances, it has been established beyond doubt that no enquiry whatsoever was conducted by the Assessing Officer on this issue and therefore since the ld. CIT had correctly invoked the revisionary proceedings, the impugned order under Section 263 of the Act dt.17.3.2014 for Assessment Year 2008-09 is to be upheld. Reliance in this context was placed on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Limited (2012) 341 ITR 293 wherein the issue in question i.e. claim of deduction under the DTAA with Canada and Thailand were not examined by the Assessing Officer, as in the issue before us in the case on hand. 6.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The CIT, Bangalore-I, on an examination of the order of assessment passed under Section 143(3) r.w.s. 144C of the Act dt.29.12.2012 and records of assessment, was of the view that the Assessing Officer, while passing the order of assessment, neither made any enquiry nor applied his mind while allowing the assessee's claim for 100% depreciation on leasehold improvements thereby resulting in the order passed being erroneous and prejudicial to the interests of Revenue. Further, we also observe that the statement of the ld. CIT, that the AR of the assessee in the course of revisionary proceedings before him vide order sheet noting on 13.3.2014 admitted that no enquiry was conducted by the Assessing Officer in assessment proceedings in respect of the issue of depreciation on leasehold improvements, has not been controverted before us. 6.2 In the above context, it would be relevant to extract hereunder the letter dt.15.7.2011 filed by the assessee before the Assessing Officer, to show the details filed in response to the Assessing Officer; requirements during scrutiny proceedings.