2012 (11) TMI 1082 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT u/s 263 of the Income Tax Act.
2. Erroneous and prejudicial nature of the assessment order.
3. Allowability of depreciation on goodwill.

Summary:

Jurisdiction of CIT u/s 263 of the Income Tax Act:
The assessee contended that the CIT lacked jurisdiction to initiate revision proceedings u/s 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interest of revenue. The CIT, however, concluded that the Assessing Officer (AO) had wrongly allowed depreciation on goodwill without proper application of mind, making the original assessment orders erroneous and prejudicial to the revenue.

Erroneous and Prejudicial Nature of the Assessment Order:
The CIT found that the AO had allowed depreciation on goodwill amounting to Rs. 4,92,18,750/- for AY 2006-07 and Rs. 3,69,14,063/- for AY 2007-08 without proper examination. The CIT set aside the assessment orders and directed the AO to make fresh assessments disallowing the depreciation claimed on goodwill. The assessee argued that the AO had made relevant inquiries and allowed the claim correctly, citing various judicial precedents to support their position.

Allowability of Depreciation on Goodwill:
The assessee argued that the depreciation claimed was on intangibles like customer/supplier contracts, export quotas, and assembled workforce, not goodwill. They cited the Supreme Court judgment in CIT v Smifs Securities Ltd., which held that "goodwill" is an intangible asset entitled to depreciation u/s 32(1)(ii) of the Act. The Tribunal noted that the CIT did not consider these precedents and directed the AO to re-examine the issue afresh, without being influenced by the CIT's categorical direction to disallow depreciation on goodwill.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to reconsider the matter in light of relevant case laws and the Supreme Court's decision in CIT v Smifs Securities Ltd. The stay petitions were rendered infructuous and dismissed.