2023 (7) TMI 491 - AT - Income Tax

Revision u/s 263 - As per CIT assessee had made incorrect claim of depreciation on Goodwill arising on amalgamation and incorrect claim of premium on redemption of debentures - HELD THAT - We find that the expression Goodwill arising on amalgamation has been duly mentioned in the scheme of arrangement itself which has been approved by the Hon ble Bombay High Court. It is grossly incorrect on the part of the ld. PCIT to state that Goodwill was not mentioned in the scheme of arrangement. All these details were indeed filed before the ld. AO by the assessee and the ld. AO having taken due cognizance of the same and the accounting entries passed by the assessee company pursuant to the order of the Hon ble Bombay High Court approving the merger, had accepted the claim of depreciation on Goodwill of the assessee. Hence, it cannot be said that relevant enquiries were not carried out by the ld. AO with regard to this issue on depreciation of Goodwill. Goodwill in the instant case had arose on account of excess of takeover of liabilities over assets from the amalgamating company and it is part of consideration paid. Hence, the assessee would be entitled for claiming depreciation on Goodwill in view of the decision in the case of CIT vs. Smifs Securities Ltd., reported in 2012 (8) TMI 713 - SUPREME COURT Hence, even on merits, assessee is entitled for depreciation on Goodwill. AO after taking due cognizance of all these documents and case laws had indeed taken a possible view in the matter, which in our considered opinion, is also the correct view in the eyes of law. Hence, the ld. PCIT could not invoke his revision jurisdiction to substitute his erroneous view on the matter in the place of view already taken by the ld. AO. Allowability of deduction of premium on redemption of debentures - It is pertinent to note that the claim of the assessee on accrual basis with regard to the premium on redemption of debentures equally over the period of debentures is strictly in accordance with the ratio laid down in the case of Madras Industrial Investment Corporation Ltd 1997 (4) TMI 5 - SUPREME COURT Hence, it cannot be said that there was an inadvertent claim made by the assessee in A.Y.2013-14 on accrual basis. When the action of the assessee is in accordance with the decision of the Hon ble Supreme Court, the ld. AO accepting the said claim of the assessee by duly following the decision of the Hon ble Supreme Court , cannot be termed as erroneous order and it cannot be stated that the ld. AO had passed an order without application of mind warranting revision u/s. 263 of the Act by the ld. PCIT. In fact, the ld. AO had taken a correct view by allowing claim of the assessee on accrual basis in the A.Y.2013-14 as the said claim is in consonance with the decision of the Hon ble Supreme Court Supra PCIT was unjustified in invoking the revision jurisdiction u/s. 263 of the Act in respect of this issue of allowability of premium payable on redemption of debentures. Assessee appeal allowed.

Summary

Issues Involved:
1. Justification of invoking revisionary jurisdiction under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Incorrect claim of premium on redemption of debentures.
3. Incorrect claim of depreciation on goodwill.

Detailed Analysis:

1. Justification of Invoking Revisionary Jurisdiction under Section 263:
The main issue to be decided was whether the PCIT was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act. The assessee argued that the assessing officer (AO) had already examined the claims during the assessment proceedings and had taken a possible view, which should not be revised merely because the PCIT holds a different opinion. The assessee relied on several judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which states that an order can only be revised if it is both erroneous and prejudicial to the interests of the revenue. The Tribunal agreed with the assessee, stating that the AO had indeed applied his mind and followed the law while allowing the claims, and therefore, the invocation of Section 263 was not justified.

2. Incorrect Claim of Premium on Redemption of Debentures:
The PCIT argued that the AO's failure to disallow the claim of Rs. 18,84,52,508 on an accrual basis for the premium on redemption of debentures rendered the assessment order erroneous and prejudicial to the revenue. The assessee contended that the claim was made to keep the deduction alive in case it was not allowed on a payment basis in AY 2015-16. The Tribunal noted that the AO had allowed the entire premium of Rs. 56,53,50,000 on payment basis in AY 2015-16, and therefore, the proportionate claim in AY 2013-14 amounted to double deduction. However, the Tribunal also observed that the AO's acceptance of the claim was based on the Supreme Court's decision in Madras Industrial Investment Corporation Ltd., which allows for proportionate deduction of such expenses. Thus, the Tribunal held that the AO's order was not erroneous, even though it might be prejudicial to the revenue, and therefore, the invocation of Section 263 was not justified.

3. Incorrect Claim of Depreciation on Goodwill:
The PCIT argued that the AO had wrongly allowed depreciation on goodwill, as no asset such as goodwill was acquired in the scheme of amalgamation. The assessee countered by stating that the goodwill arose from the merger of Infiniti Wholesale Ltd. with the assessee company, and the scheme of amalgamation, approved by the Bombay High Court, included the recognition of goodwill. The Tribunal found that the AO had indeed examined the claim in detail, considering the submissions and supporting documents provided by the assessee. The Tribunal also noted that the Supreme Court in CIT vs. Smifs Securities Ltd. had held that goodwill is an asset eligible for depreciation under Section 32 of the Act. Therefore, the Tribunal held that the AO's order allowing depreciation on goodwill was not erroneous, and the invocation of Section 263 by the PCIT was unjustified.

Conclusion:
The Tribunal quashed the revisionary order passed by the PCIT under Section 263 of the Income Tax Act, holding that the AO had taken a possible and legally sustainable view while allowing the claims for premium on redemption of debentures and depreciation on goodwill. The appeal of the assessee was allowed.