2019 (6) TMI 422 - AT - Income Tax

Rectification u/s 254 - tangible asset on account of goodwill and commercial rights and registration existed in the books of the firm before Succession - HELD THAT - Upon careful consideration we find that by submitting elaborate arguments in the realm of review of the order of ITAT, the assessee is seeking an order u/s. 254(2) which only permits rectification of mistake apparent from record. The submission of the assessee herein above, barring a typographic mistake in figures, which though has no affect on the final outcome has duly been rectified by corrigendum, call for immense amount of reasoning and review. The learned Counsel of the assessee has even made further legal submissions. It is settled law that review of the order in the garb of rectification of mistake is not permissible in the Act.

Summary

Issues Involved:
1. Rectification of Mistake u/s 254(2)
2. Existence of Intangible Assets (Goodwill and Commercial Rights)
3. Consideration for Intangible Assets
4. Depreciation Claim on Intangible Assets
5. Allegation of Artificial Creation of Assets
6. Share Premium and Allotment of Shares

Issue-wise Detailed Analysis:

1. Rectification of Mistake u/s 254(2):
The assessee sought rectification of mistakes apparent from the record under section 254(2) of the Income Tax Act, 1961, in the Tribunal's order dated 2.5.2018. The Tribunal emphasized that the rectification under this section only permits correction of mistakes apparent from the record and does not allow for a review of the order. The Tribunal concluded that the assessee's submissions required extensive reasoning and review, which is not permissible under the Act. Consequently, the Miscellaneous Application filed by the assessee was dismissed.

2. Existence of Intangible Assets (Goodwill and Commercial Rights):
The Commissioner of Income Tax (Appeals) found that no tangible asset on account of goodwill and commercial rights and registration existed in the books of the firm before succession. The Tribunal upheld this finding, noting that the balance sheet of the firm as on 30.09.2009 did not mention any goodwill or commercial rights. The Tribunal agreed with the CIT(A) that the assets were artificially created after the succession of the firm.

3. Consideration for Intangible Assets:
The CIT(A) mentioned that no consideration was paid for the intangible assets created on succession, leading to the disallowance of depreciation due to the absence of a cost of acquisition. The Tribunal noted that the intangible assets were self-generated and created based on the firm's name, business standing, and other factors. However, the issue was that there was no cost paid for their creation.

4. Depreciation Claim on Intangible Assets:
The assessee claimed depreciation on the intangible assets taken over from the partnership firm. The Tribunal found that there was no evidence of the existence of such assets in the books of the partnership firm before succession. Consequently, the Tribunal upheld the CIT(A)'s decision to disallow the depreciation claim, as the assets were not in existence in the predecessor firm's books.

5. Allegation of Artificial Creation of Assets:
The Tribunal agreed with the CIT(A) that the intangible assets were artificially created subsequent to the succession of the firm in the books of the assessee company. The Tribunal noted that the balance sheet as on 30.09.2009 did not reflect the existence of goodwill or commercial rights, and the schedules attached to the balance sheet as on 01.10.2009 were unsigned. The Tribunal concluded that the assets were created solely to claim depreciation.

6. Share Premium and Allotment of Shares:
The Tribunal observed that the succession agreement did not mention the allotment of shares on premium. The assessee's counsel could not provide information on how the share premium was determined. The Tribunal found that the premium amount was part of the consideration and that the overall consideration remained the same. The Tribunal noted that the issue of depreciation of intangibles was not related to the share premium and its justification.

Conclusion:
The Tribunal dismissed the Miscellaneous Application filed by the assessee, finding no mistake apparent from the record that warranted rectification under section 254(2). The Tribunal upheld the CIT(A)'s findings that the intangible assets were artificially created after the succession of the firm and that there was no evidence of their existence in the predecessor firm's books. Consequently, the depreciation claim on these assets was disallowed.