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2009 (6) TMI 570 - HC - Income TaxRevision- Whether on the facts and in the circumstances of the case and in law the Income-tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (respondent No. 2) in exercising revisional power vested in him under section 263 of the Income-tax Act, 1961 whereby respondent No. 2 set aside the assessment order passed by the Assessing Officer ? Whether on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in its view that the payment made by the assessee to M/s. Nehru Centre entitled goodwill was capital in nature ? Held that- the order was found to be erroneous by the revisional authority, but nowhere the finding was recorded that the order passed by Assessing Officer was prejudicial to the interests of the revenue, it was not open for the revisional authority to assume jurisdiction. The revision was not valid.
Issues:
1. Invocation of power under section 263 of the Income-tax Act, 1961. 2. Determination of whether the payment made by the assessee to M/s. Nehru Centre as 'goodwill' was capital in nature. Issue 1: Invocation of power under section 263 of the Income-tax Act, 1961: The primary issue in this appeal pertains to the invocation of power under section 263 of the Income-tax Act, 1961. The revisional authority set aside the assessment order passed by the Assessing Officer, questioning the allowability of the payment made by the assessee to Nehru Centre as goodwill. The revisional authority found the payment to be unwarranted and lacking commercial expediency. The High Court referred to the interpretation of section 263 by the apex court in the case of Malabar Industrial Co. Ltd. v. CIT, emphasizing that for the exercise of jurisdiction under this section, the order of the Assessing Officer must be both erroneous and prejudicial to the interests of the Revenue. The court noted that the revisional authority did not explicitly find the order prejudicial to revenue, leading to the conclusion that the invocation of section 263 was erroneous. Consequently, the High Court ruled in favor of the assessee, holding that the revisional authority was not justified in setting aside the Assessing Officer's order. Issue 2: Determination of the nature of the payment to M/s. Nehru Centre as 'goodwill': The second issue raised in the appeal concerns the nature of the payment made by the assessee to M/s. Nehru Centre, characterized as 'goodwill.' The Income-tax Appellate Tribunal had deemed this payment as capital in nature. However, the High Court analyzed the facts and circumstances surrounding the payment. The court observed that the Assessing Officer had not delved into the nature and commercial expediency of the goodwill payment, allowing it without proper scrutiny. The High Court, after ruling in favor of the assessee on the first issue, remanded the matter back to the Assessing Officer for a fresh decision on the payment's nature, emphasizing that the Assessing Officer should not be influenced by the High Court's order. Therefore, the second issue was remanded for fresh consideration by the Assessing Officer. In conclusion, the High Court's judgment in this case addressed the invocation of power under section 263 of the Income-tax Act, 1961, and the determination of the nature of the payment made by the assessee to M/s. Nehru Centre as 'goodwill.' The court emphasized the requirement for an order to be both erroneous and prejudicial to the interests of the Revenue for the exercise of jurisdiction under section 263. Additionally, the court directed a fresh consideration by the Assessing Officer regarding the nature of the goodwill payment.
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