2018 (12) TMI 631 - AT - Income Tax

Revision u/s 263 - employees contribution towards provident fund amounting and towards ESIC were paid by Company beyond the prescribed due date and yet were allowed by the Assessing Officer in computation of income - Held that - The issue of allowance of provident fund and ESIC dues are concerned, the same issue is covered in favour of the assessee in the case of CIT vs. Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT . Revision u/s 263 - Depreciation on non compute fee - Held that - We find that the claim was duly made by the assessee in the computation of income. Hence, it cannot be said that the A.O. has not applied his mind on this issue. In this regard, we place reliance upon the case law in the case of State Bank of India vs. ACIT (2018 (6) TMI 1326 - BOMBAY HIGH COURT) for the proposition that when the A.O. allows a claim on the basis of computation of income, it cannot be said that the same has been done without application of mind. Furthermore, we find that the issue of depreciation on intangible assets in the nature of goodwill has been decided in favour of the assessee by the decision in the case of CIT vs. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT . Hence, the claim of the deprecation on non compete fee can be considered on the anvil of these case laws. Hence, the view adopted by the A.O. cannot be said to be not a possible one. Hence for the proposition that if there are two views possible and the A.O. has adopted one view, with which the ld. CIT is not in agreement, with the order cannot be said to be liable to be visited with the revisionary order by the ld. CIT u/s. 263. Accordingly, the order under 263 passed by the ld. CIT is hereby quashed. Decided in favour of the assessee.

Summary

Issues:
1. Whether the order passed by the Assessing Officer under section 143(3) was erroneous and prejudicial to the interest of the revenue.
2. Whether the Assessing Officer correctly allowed the deduction for employees' contribution towards provident fund and ESIC, and the depreciation on non-compete fee.

Analysis:

Issue 1:
The Commissioner of Income Tax (CIT) observed discrepancies in the assessment for the year 2010-11, where the Assessing Officer allowed deductions for employees' contribution towards provident fund and ESIC, paid beyond the due date. The CIT noted that specific provisions of the Income Tax Act supersede general provisions, emphasizing that the Assessing Officer overlooked this critical concept. As per the CIT, the Assessing Officer's failure to disallow the expenditure under section 36(1)(va) was erroneous and prejudicial to the revenue's interest, warranting action under section 263.

Issue 2:
Regarding the non-compete fee, the CIT found that the Assessing Officer did not analyze the issue correctly. The CIT highlighted that the payment of non-compete fee did not create any asset for the assessee and failed to consider crucial facts, such as the relationship between the parties involved. The CIT concluded that the Assessing Officer's order was erroneous and prejudicial to the revenue, as it missed the possibility of disallowing depreciation on the non-compete fee. The CIT directed the Assessing Officer to re-examine the issue based on these considerations.

In response to the CIT's observations, the assessee argued that the High Court's decision favored them on the provident fund and ESIC deductions issue, and the claim for depreciation on the non-compete fee was valid. The assessee contended that the Assessing Officer had duly considered these aspects, and the CIT's intervention under section 263 was unwarranted.

The Tribunal, after hearing both sides, upheld the assessee's contentions. It relied on the High Court decisions supporting the assessee's position on the provident fund and ESIC deductions. Additionally, the Tribunal noted that the claim for depreciation on intangible assets, like goodwill, had legal backing from the Apex Court. It concluded that the Assessing Officer's decisions were reasonable and based on applicable case laws, dismissing the CIT's intervention under section 263.

Therefore, the Tribunal allowed the assessee's appeal, quashing the CIT's order under section 263 and deciding in favor of the assessee on both issues.