2011 (5) TMI 956 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction u/s 263 of the Act.
2. Nature of payment for Brand Name and Logo - Capital or Revenue.
3. Disallowance of service tax component.

Summary:

Jurisdiction u/s 263 of the Act:
The appeal concerns the order passed by the CIT, Chennai-I, u/s 263 of the Income Tax Act, 1961, revising the assessment order for the year 2006-07. The CIT assumed jurisdiction under section 263, claiming the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that for an order to be revised u/s 263, it must be both erroneous and prejudicial to the Revenue. The CIT must have material to form a prima facie opinion that the order is erroneous and prejudicial.

Nature of Payment for Brand Name and Logo - Capital or Revenue:
The assessee had claimed a deduction of ` 3,83,43,000/- for obtaining rights for usage of the Brand Name and Logo from M/s Samruddhi Holdings. The CIT contended that the Assessing Officer did not examine whether this payment was capital or revenue in nature. However, the Tribunal found that the Assessing Officer had indeed examined this issue in detail, considering the submissions and evidence provided by the assessee. The Tribunal concluded that the Assessing Officer's view that the payment was a revenue expenditure was one of the possible views and could not be termed erroneous.

Disallowance of Service Tax Component:
The CIT also noted that the Assessing Officer disallowed an amount related to service tax paid to M/s Spark Capital Advisors (India) P. Ltd. but did not disallow the service tax component. The Tribunal observed that the assessee had not claimed the service tax component in the Profit & Loss Account and had explained the accounting treatment during the assessment proceedings. The Tribunal held that the Assessing Officer had examined this issue, and the CIT's further enquiry under section 263 was not justified.

Conclusion:
The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The CIT's order u/s 263 was set aside, and the original assessment order was restored. The appeal of the assessee was allowed.