2024 (12) TMI 641 - AT - Income Tax

Revision u/s 263 - depreciation claim on intangible assets - HELD THAT - We find that the assessee complied with the scrutiny assessment proceedings conducted by the Ld. AO, furnishing all supporting documents related to investments in asset additions. The value of the intangible assets and the corresponding investments was duly verified during the assessment proceedings and accepted within the scope of the limited scrutiny framework. Following a comprehensive verification process, the Ld. AO did not find it necessary to expand the scope of the scrutiny assessment from limited to full-fledged scrutiny. It is well established that the jurisdiction of the Ld. PCIT is also confined to the boundaries set by the assessment order. As decided in Mind Sports League Pvt Ltd 2023 (11) TMI 1319 - ITAT KOLKATA PCIT cannot invoke Section 263 to re-examine issues already considered by the Ld. AO during the course of scrutiny assessment. No new issues can be introduced for examination under Section 263. Furthermore, we note that the issue addressed by the Ld. PCIT pertaining to depreciation on intangible assets is squarely covered by the decision of the Hon ble Supreme Court in Smif Securities Limited 2012 (8) TMI 713 - SUPREME COURT as upheld the eligibility of the claimed depreciation. In the present case, the Ld. DR could not provide any contrary precedent or substantive argument against the submissions of the Ld. AR. In our considered view, for a revision under Section 263 to stand, the Ld. PCIT must satisfy two conditions (i) the assessment order sought to be revised is erroneous, and (ii) it is prejudicial to the interest of the Revenue. In the impugned revisional order, neither of these conditions has been fulfilled. Accordingly, the revisional order passed under Section 263 is set aside and quashed. Assessee appeal allowed.

Summary

Issues:
1. Jurisdiction of the Ld. Principal Commissioner of Income-tax (PCIT) under Section 263 of the Income-tax Act, 1961.
2. Allowability of depreciation on intangible assets.

Analysis:

Issue 1: Jurisdiction of the Ld. PCIT under Section 263
The appeal was filed against the order of the Ld. PCIT passed under Section 263 of the Income-tax Act, 1961. The Ld. PCIT set aside the assessment order passed by the Ld. Assessing Officer (AO) under Section 143(3) read with Section 144B of the Act for the assessment year 2020-21. The Ld. PCIT found the assessment order erroneous and prejudicial to the interests of the revenue as the claimed excess depreciation on intangible assets was not duly verified during the limited scrutiny assessment. The Ld. PCIT invoked Explanation 2(a) to Section 263 to set aside the assessment order. However, the Ld. PCIT's jurisdiction was challenged by the appellant, arguing that the Ld. AO had completed the assessment properly within the limited scrutiny framework. The appellant relied on judicial precedents to support the contention that the Ld. PCIT cannot revisit issues already considered during limited scrutiny. The ITAT, Mumbai Bench-E, in a similar case, set aside the revisional order of the Ld. PCIT based on the decision of the Hon'ble Supreme Court. The ITAT held that the Ld. PCIT's powers under Section 263 cannot be used to re-examine issues already addressed by the Ld. AO during the limited scrutiny assessment.

Issue 2: Allowability of Depreciation on Intangible Assets
The appellant contested the Ld. PCIT's decision regarding the depreciation claimed on intangible assets acquired through a slump sale. The appellant argued that the claimed depreciation was allowable under Section 32(1) of the Act, citing the decision of the Hon'ble Supreme Court in a relevant case. The Ld. PCIT's order was based on the alleged excess depreciation claimed by the assessee without proper verification during the limited scrutiny assessment. However, the ITAT found that the Ld. AO had conducted a thorough verification of the investments and intangible assets within the limited scrutiny framework. The ITAT also noted that the issue of depreciation on intangible assets was already settled by judicial precedents, including the decision of the Hon'ble Supreme Court. The appellant's reliance on these precedents, along with the absence of contrary arguments or precedents from the Ld. DR, led the ITAT to conclude that the revisional order under Section 263 lacked merit and did not fulfill the conditions necessary for revision.

In conclusion, the ITAT allowed the appeal of the assessee, setting aside the revisional order passed under Section 263 by the Ld. PCIT. The ITAT's decision was based on the lack of fulfillment of conditions for revision and the jurisdictional limitations of the Ld. PCIT as per judicial precedents and statutory provisions.