2019 (9) TMI 1350 - AT - Income Tax

Revision u/s 263 - assessee is aggrieved by the revision order passed in respect of expenditure claimed as good will - HELD THAT - AO did not conduct any enquiry at all with regard to the claim of Good Will made by the assessee. The Ld A.R also could not demonstrate that the AO did conduct enquiry and has taken a possible view. AO has passed the order without making any enquiry on this issue and the same would render the order erroneous and in view of its tax implications, the same would cause prejudice to the interests of revenue. With regard to the contention of the assessee that the assessment order cannot be considered to be prejudicial to the interests of revenue on account of the eligibility of the assessee to claim depreciation on the Good Will amount, we are of the view that the said claim does not arise out of the assessment order and hence the same cannot be considered. - Decided against assessee.

Summary

Issues:
Appeal challenging revision order u/s 263 for AY 2011-12 on expenditure claimed as "good will".

Analysis:
The assessee appealed against the revision order passed by Ld Pr. CIT, challenging the assessment of expenditure claimed as "good will". The Ld A.R contended that the amount paid to the outgoing distributor was for expanding the existing business, not for acquiring goodwill. The Ld A.R argued that if the claim was disallowed, the assessee would be entitled to depreciation on the full amount, resulting in lower total income. On the other hand, the Ld D.R argued that since the amount was capital expenditure, it couldn't be allowed as a deduction. The Ld CIT-DR stated that the revision order merely directed the AO to examine the claim according to the law.

The ITAT Bangalore examined the legal position regarding the power of the CIT to invoke revision proceedings under section 263 of the Act. Referring to the case law, the ITAT emphasized that for the revision order to be valid, the assessment order must be both erroneous and prejudicial to the interests of revenue. In this case, it was noted that the AO had not investigated the "good will" claim, rendering the order erroneous. The ITAT rejected the assessee's argument that the order was not prejudicial to revenue due to potential depreciation benefits, as this claim did not arise from the assessment order.

Consequently, the ITAT upheld the revision order passed by Ld Pr. CIT, dismissing the appeal filed by the assessee. The decision was pronounced in the Open Court on 27th September 2019.