2024 (10) TMI 26 - AT - Income Tax

Rectification order u/s 154 reversing own order - allowance of depreciation on non-compete fee - HELD THAT - As if the issue is debatable in that event the provisions of section 154 of the Act cannot be invoked. In the case in hand, primary issue related to allowance of depreciation on non-compete fee is pending consideration before the Hon ble Supreme Court. Further, the Hon ble Jurisdictional High Court has also admitted the issue whether powers u/s 154 can be exercised when the issue is debatable in the assessee s own case for earlier assessment year. Under these circumstances and looking to the totality of facts when the Hon ble Jurisdictional High Court has admitted the identical question in assessee s own case we deem it proper for the judicial discipline and propriety to set aside the impugned order and restore the issue to the file of learned CIT(Appeals), who would decide it after the outcome of 2024 (3) TMI 1355 - DELHI HIGH COURT in assessee s own case for the assessment year 2012-13 and pass order accordingly. Appeal of the assessee stands allowed for statistical purposes.

Issues Involved:
1. Whether the CIT(A) erred in passing the order u/s 154 by reversing his own order.
2. Whether the CIT(A) failed to extend an opportunity to examine additional evidence.
3. Whether the CIT(A) erred in withdrawing depreciation on non-compete fee.
4. Whether the CIT(A) erred in disallowing brought forward accumulated losses.
5. Whether the CIT(A) exceeded his authority by reversing his own order and ignoring a predecessor's order.

Issue-wise Detailed Analysis:

1. Whether the CIT(A) erred in passing the order u/s 154 by reversing his own order:
The appellant argued that the CIT(A) grossly erred in reversing his own order passed under section 154, which was arbitrary and against the principles of natural justice and the provisions of the IT Act, 1961. The CIT(A) had initially allowed the appeal against the AO's order disallowing depreciation claimed on non-compete fees, but later rectified his own order citing the judgment of the Hon'ble Delhi High Court in the case of M/s Sharp Business System v. CIT.

2. Whether the CIT(A) failed to extend an opportunity to examine additional evidence:
The appellant contended that the CIT(A) failed to extend an opportunity to examine any additional evidence, which is against the principles of natural justice. The appellant argued that this procedural lapse further invalidated the rectification order passed under section 154.

3. Whether the CIT(A) erred in withdrawing depreciation on non-compete fee:
The appellant claimed depreciation on non-compete fees as an intangible asset under section 32(1)(ii) of the IT Act, 1961. The CIT(A) initially allowed this claim but later withdrew it, citing the Hon'ble Delhi High Court's judgment in M/s Sharp Business System v. CIT, which ruled against the allowance of such depreciation. The appellant argued that this issue is debatable and should not be subjected to rectification under section 154, especially since conflicting decisions exist among various High Courts and the matter is pending before the Hon'ble Supreme Court.

4. Whether the CIT(A) erred in disallowing brought forward accumulated losses:
The appellant argued that the CIT(A) erred in disallowing brought forward accumulated losses of Rs. 5,24,34,375/- by withdrawing the allowed depreciation. The disallowance was based on the ground that the depreciation was not available to the assessee, which the appellant contested as erroneous.

5. Whether the CIT(A) exceeded his authority by reversing his own order and ignoring a predecessor's order:
The appellant contended that the CIT(A) exceeded his authority by reversing not only his own order but also ignoring the order passed by his predecessor in the same issue for AY 2012-13. The predecessor had set aside the AO's order disallowing depreciation on non-compete fees. The appellant argued that the CIT(A) ignored the merits of the case and judicial orders not applicable to the appellant.

Tribunal's Decision:
The Tribunal noted that the CIT(A) rectified his order based on the judgment of the Hon'ble Delhi High Court in M/s Sharp Business System v. CIT, which ruled against the allowance of depreciation on non-compete fees. The Tribunal acknowledged the appellant's argument that the issue is debatable and pending before the Hon'ble Supreme Court. Additionally, the Tribunal observed that the Hon'ble Delhi High Court had admitted a related question of law in the appellant's own case for AY 2012-13.

The Tribunal emphasized the principle that a debatable issue should not be subjected to rectification under section 154. It cited several judicial pronouncements supporting this view, including the Hon'ble Supreme Court's judgment in T. S. Balaram, ITO v. Volkart Bros and the Hon'ble Calcutta High Court's judgment in CIT v. Orient Paper Industries Ltd.

Given the judicial precedents and the pending appeal before the Hon'ble Supreme Court, the Tribunal set aside the impugned order and restored the issue to the file of the CIT(A). The CIT(A) was directed to decide the matter after the outcome of the pending appeal in the appellant's own case for AY 2012-13.

Conclusion:
The appeal of the assessee was allowed for statistical purposes. The Tribunal directed the CIT(A) to reconsider the issue after the resolution of the pending appeal before the Hon'ble Supreme Court, ensuring judicial discipline and propriety.

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