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TMI Blog2012 (10) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant following inadvertent errors/findings were noticed in the said order : i. Findings that valuation report is an after thought ii. There is contradiction while following the ITAT Order for AY 2003-04 iii. No depreciation is allowable if no claim is made/allowed in preceding years iv. Rejection of Buyers right to allocate purchase price as per valuation report to various assets acquired under slump sale. v. Erroneous reliance on disclaimer clause. 2. Brief Facts: The assessee engaged in the business of Airline and Institutional catering filed its return of income on 12.12.2006 for income of Rs. 36.06 Crores. In the assessment completed u/s. 143(3) r.w.s.144C (13)of the Act income of the assessee was determined at Rs.44.07 Crores after making addition of Rs. 7.78 Crores on account of disallowance of depreciation on goodwill. The question of goodwill arose for the first time in the AY 2003-2004 and disallowance made for that AY has direct impact on the proceedings for the year under consideration. So, we would like to discuss facts of that AY also. 2.1. In that AY return of income was filed on 27.11.2003 declaring loss of Rs. 10.91 Crores. In the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional evidence and remit the matter back to the file of the Assessing Officer for fresh adjudication in accordance with law . 3. In pursuance of the order of the Tribunal AO issued notice to the assessee and started fresh assessment proceedings. Assessee filed various documents before the AO like Corporate Services Agreement, Name and trade mark license agreement, Business transfer agreement, Lease deed of Delhi flight kitchen, Operating agreement with TMFK, Sample copies of recipes. AO found that the assessee had acquired the catering business of Indian Hotels Co. Ltd.,(IHCL) a joint venture between IHCL and Singapore Air Terminus Services Ltd.(SATS) vide business transfer agreement (BTA) dated 25.09.01, that the contracts for acquiring the various assets were available to the assessee at the time of making the original valuation, including that of goodwill, that the said contracts were included in the original valuation, that the assessee had valued various assets including goodwill at Rs. 73.74 Crores as on 01.04.2002. He held that the assessee had not brought in any other assets at the time of acquiring the business, that the assessee did not bring in any other assets in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee separately did not arise and that the valuation dated 23-03-2009 by M/s. Ernst Young Pvt. Ltd. could not be accepted, that the whole exercise of breaking up and valuing the goodwill was an afterthought after losing the claim at the first appellate stage to defeat the revenue. So, he disallowed the claim of depreciation made by the assessee for the AY 2003-04 in following words: It was only when the CIT(A) has upheld the Assessing Officer s order on this ground and during the course of appellate proceedings before the Hon ble ITAT, the assesse has suddenly realized that there were intangible assets that were included in the value of Rs. 73.74 crores which was loosely grouped as goodwill . 4.2 On the same day i.e.,on 26-10-2010, AO passed order for the A.Y. 2006-07 also. Assessee preferred an appeal before the FAA for the A.Y. 2003-04, whereas appeal for AY 2006-07 was filed before the Tribunal as the order was passed in pursuance of the directions of DRP, Mumbai. 5. Deciding the appeal for the A.Y. 2006-07, Tribunal extensively discussed the order of the AO and held as under : In grounds of appeal No.3, the assessee has challenged the order of the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 3.2 IV. Lease agreement for Delhi Kitchen 1.3 V. Recipes 2.0 VI. Licenses to operate kitchen at Mumbai, Kolkata and New Delhi 0.1 VII. Valuable work force 2.6 VIII. Goodwill 21.4 Total 71.0 Referring to provisions of section 32 it was submitted that various intangibles/rights enumerated above are intangible assets specifically covered u/s. 32 of the I.T. Act. It was submitted that any other business or commercial rights of similar nature have also been covered within the ambit of section 32 although the same is not specifically defined in the Act or in the rules. 5.3 However, the AO was not convinced with the explanation given by the assessee. He observed that the tax auditors in the tax audit report dated 28-10-2005 without any qualification has not considered depreciation on goodwill as allowable deduction. According to the AO when any business is taken over as a going concern, it includes taking over of all assets and liabilities including the various commercial rights and licenses. The consideration is not paid independently for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Catering Unit of TMFK. 4. Lease agreement for Delhi Kitchen 1.3 TACL has 30 years (10 years extendable) right in leasehold land measuring 14440 sq.mt. located at Delhi international Airport. 5. Recipes 2.0 TACL has invested in R D of in-house recipes developed over a period of 5 years. 6. Licenses 0.1 TACL has licenses to operate kitchen at Mumbai, Kolkata and New Delhi 7. Work force 2.6 TACL has valuable work force at Mumbai, New Delhi and Kolkata which is valued as part of Goodwill. Total 49.6 5.6 According to the AO, the assessee had acquired the catering business of Indian hotels Company Limited, a joint venture between Indian Hotels Company Ltd., and Singapore Air Terminus Services Limited vide business transfer agreement dated 25-09-2001. The contracts for acquiring the various assets were available to the assessee at the time of making original valuation, including that of goodwill. The said contracts were included in the original valuation. The assessee has valued various assets including goodwill which was valued at Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, the quantum of depreciation that he is entitled to. Thus, we admit this additional evidence and remit the matter back to the file of the assessing officer for fresh adjudication in accordance with law. 5.8 From the above it is clear that the Tribunal has categorically held that no depreciation is allowable on goodwill. The assessee has not challenged the above finding of the Tribunal before the Hon'ble High Court and has accepted the same. This being so it has to be held that no depreciation is allowable on goodwill in case of the assessee. The various decisions relied on by the Ld. Counsel for the assessee to the proposition that depreciation is allowable on goodwill does not hold good under the present facts and circumstances of the case. 5.9 So far as the bifurcation of various items i.e. intangible assets which according to the ld. A.R. were loosely worded as goodwill in the earlier agreement, we find the assessee furnished the valuation report of the valuers after 8 years of the business transfer agreement. Even the valuers in the said valuation report has mentioned that they are preparing the same at the instance of the assessee and on the basis of the material pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assumptions used in their preparation, as we have been explained, are based on the management s present expectation of both-the most likely set of future business events and circumstances and the management s course of action related to them. It is usually the case that some events and circumstances do not occur as expected or are not anticipated. Therefore, actual results during the forecast period may differ from the forecast and such differences may be material. No investigation of the Company s claim to title to assets has been made for the purpose of this valuation and the Company s claim to such rights has been assumed to be valid. No consideration has been given to liens or encumbrances against the assets, beyond the loans disclosed in the accounts. Therefore, no responsibility is assumed for matters of a legal nature. 5.10 From the above it is clear that the valuation done by the valuers was at the instance of the assessee company with no obligation and responsibility on their part and its preparation after a gap of eight years and that too after the order passed by the CIT(A) rejecting the claim of depreciation on goodwill clearly an after thought as observed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 497). 6.1. In our humble opinion rectification of mistake apparent from the record appearing in tax statues, is not a seven worded sentence, it is a concept. A few ingredients of the concept are-first of all there should be a mistake, secondly, it should be apparent form the record and finally it should be rectifiable. Here, understanding of history, philosophy and basic principles related with rectification of mistakes will be useful. The basic reason behind incorporating provisions of rectifications of mistakes in taxation jurisprudence is recognisation of the universal and eternal truth that to err is human. Clear and unambiguous mandate of the judiciary in this respect is that barring a few incurable mistakes all other mistakes arising out of tax disputes should be rectified as soon as possible. Perpetuating mistakes was never considered bravery in tax related matters. Perhaps, because of that understanding rectification provisions found place in the Act XXII of 1860 also-Sub sections 2-5 of Sec. LVI of the said Act were about correcting the mistakes of assessment. Section 35 of the 1922 the Indian Income-tax, Act was prelude to present rectification provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the provisions of law. iii). Non consideration of facts is not a factor for invoking jurisdiction u/s. 254(2) of the Act. But, non-consideration of a matter cited before the bench having substantive effect on the outcome of the case is definitely a mistake apparent form the record. iv). An error of judgment is not considered a mistake apparent form record. Error of judgment has its own meaning in tax jurisprudence. v). Parties before the Tribunal cannot reargue the entire matter in the name of rectification of mistakes. vi). Annulling an order passed by the Tribunal is governed by Rule 24 of the ITAT Rules and section 254(2) is not a substitute for it. The scope and ambit of application of section 254(2)of the Act is very limited. It is restricted to rectification of mistakes apparent from the record. Power to recall an order is prescribed in terms of rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, and that too only in cases where the assessee shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex parte. vii). In the absence of any specific power conferred by the statute or inferred by implication, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 29 would be useful. It reads as under : The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced. In our opinion above referred section says that whenever, a prima facie case is made before the Tribunal that certain documents/affidavit will be useful for deciding an issue argued before it, Tribunal may admit the same or it may direct the lower authorities to examine the documents/affidavit. Direction of the Tribunal to the FAA/AO in this regard is a neutral action. By sending the additional evidence to lower authorities, Tribunal wants them to go through them thorough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the Tribunal was a manifest error . Hon ble SC restored the order of the Tribunal by reversing the order of Hon ble High Court of Delhi. If we consider the facts of the case under consideration, we find that no order of coordinating bench was available to the E Bench of Tribunal-what was available was an interim order passed in peculiar circumstances. Assessee for the first time before the Tribunal submitted some documents stating that same would have direct bearing on the appellate proceedings. Under Rule 29 of the ITAT, Rules, 1963 said documents were admitted by the Tribunal as Additional evidence and were forwarded to the AO. In our humble opinion admitting an additional evidence is and cannot be equated with passing an effective and substantive final order. Secondly, while passing the order E Bench did not ignore the order admitting the additional evidence-rather it is very much part of the order. In these circumstances, we are of the opinion that order of the E Bench of the Tribunal (supra) cannot be rectified u/s.254(2) of the Act. Full Bench of Hon ble Delhi HC has analysed the matter of Honda in the case of Lachman Dass Bhatia Hingwala (P.) Ltd.(330ITR243) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it inadvertently or by oversight, the only appropriate method of correcting such mistake is to recall the order and make a fresh order after affording an opportunity of hearing to such party. In all such cases, ordinarily the court or Tribunal acts ex debito justitiae to prevent abuse of process even in the absence of any power. Once a mistake on the face of the record is established what order should follow to correct that mistake shall always depend on the facts and circumstances required to rectify the mistake. If the mistake is one which requires determination of some undecided issue because it has not been decided though raised, the procedure that would follow the discovery of such mistakes is to recall the order and decide the case afresh or to decide that issue after affording an opportunity to the parties concerned and pass a fresh order in the light of finding on such issue. The order under section 254(2) of the Income-tax Act, 1961, is not confined to arithmetical or clerical mistakes, nor only to correct substantive mistakes but also procedural mistakes. In our opinion the facts of the present case are clearly distinguishable from the case of Ramesh Chand Mod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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