2002 (9) TMI 867 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order passed u/s 263 of the Income-tax Act, 1961.
2. Nature of payment termed as "Goodwill" and its allowability as revenue expenditure.
3. Adequacy of enquiries made by the Assessing Officer.

Summary:

1. Validity of the order passed u/s 263 of the Income-tax Act, 1961:
The appeal challenges the order passed by the CIT-18, Mumbai u/s 263 of the Act, which the assessee claims is ab initio void, illegal, and bad in law. The CIT observed that the Assessing Officer (AO) allowed certain claims erroneously, which were prejudicial to the interest of the revenue. The Tribunal upheld the CIT's order, emphasizing that the CIT has supervisory jurisdiction to revise orders that are erroneous and prejudicial to the interest of the Revenue. The CIT's order was considered valid as it was based on the lack of proper enquiries by the AO.

2. Nature of payment termed as "Goodwill" and its allowability as revenue expenditure:
The assessee argued that the payment of "Goodwill" was part of the monthly rent and should be considered as revenue expenditure. The CIT, however, found that the payment of "Goodwill" was unwarranted and for extraneous considerations, and the AO did not ascertain the exact nature of the payment. The Tribunal agreed with the CIT, stating that the payment for "Goodwill" was for acquiring an enduring benefit for the business and thus of capital nature. The Tribunal cited the Supreme Court's decision in Assam Bengal Cement Co. Ltd. v. CIT, which held that expenditure for acquiring an asset or advantage for enduring benefit is capital expenditure.

3. Adequacy of enquiries made by the Assessing Officer:
The Tribunal noted that the AO failed to make proper enquiries regarding the nature of the payments made under two separate agreements signed on the same date. The AO's order was considered cryptic and made in undue haste without sufficient investigation. The Tribunal upheld the CIT's direction to the AO to make further enquiries and ascertain the exact purpose and benefit derived from the payment termed as "Goodwill." The Tribunal emphasized that the AO's failure to make necessary enquiries rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the CIT's order u/s 263, which directed the AO to re-examine the nature of the payment termed as "Goodwill" and its allowability as revenue expenditure. The Tribunal found that the AO's order was erroneous and prejudicial to the interest of the Revenue due to the lack of proper enquiries.