9911796707
TMI Blog2024 (7) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT has relied on a definition in the AS-26 for stating the method prescribed by the Standard for valuation of intangible asset and then gone on to find error in the valuation method adopted by the assessee, which method has been suitably demonstrated before us to be in accordance with that prescribed by the Accounting Standard. Assessee has pointed out to us that the accounting standard AS-26 prescribes the historical cost basis for accounting for intangible assets which are developed by the entities by incurring expenditure. That the ld. PCIT has noted in her notice that the assessee did develop the intangible assets itself by way of developing designs relating to machinery and had valued the intangible assets on the basis of cost incurred for developing designs. Therefore, we find, that even as per the facts noted by the ld. PCIT, the assessee s basis of valuation of the intangible assets was as per that prescribed by AS-26 and the ld. PCIT s belief that the assessee had not followed AS-26 was an incorrect and completely flawed understanding of the Accounting Standard. We completely agree with assessee that the very basis, therefore, for assumption of jurisdiction under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Decided in favour of assessee. - MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER For the Assessee : Shri Tushar Hemani, Sr. Advocate Shri Parimar, AR For the Revenue : Shri Akhilendra Pratap Yadav, CIT-DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax-3, Ahmedabad [here in afterreferred to as PCIT ] dated 30.03.2023, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as the Act ], for the Assessment Year 2018-19. 2. The assessee has raised the following grounds:- 1. The Id. PCIT has grossly erred in law and on facts of the case in initiating proceedings u/s. 263 of the Act against the amalgamating company not in existence on the date of initiation of such proceedings. Under the facts and circumstances of the case, the action of initiating revisionary proceedings is without jurisdiction and is not permissible either in law or on facts. 2. The Id. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s. 263 of the Act on the erroneous ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue even on the basis of the alleged incorrect error noted by the ld. PCIT. 4. Our attention was drawn to the show-cause notice issued by the ld. PCIT under Section 263 of the Act, placed before us at page Nos. 80 81of the paper-book, which reads as under:- No. Pr.CIT-3/HQ/263/NTPL/2022-23 Date: 21.03.2023 PAN: AADCN4650M To, Neuation Technologies Pvt Ltd, Plot No15, GIDC Electronic Park SEZ, Sector-26, Gandhinagar Sub: Revisional proceedings u/s.263 of the I.T. Act 1961 for A.Y. 2018-19- Show Cause Notice - reg.- Please refer to the above. 2. On verification of case records, it is seen that you have filed return of income for A.Y. 2018-19 on 29.11.2018 declaring total income of Rs. (-)125,09,735/-. Your case was selected for scrutiny to verify the issue of investment in intangible assets. The assessment was finalized u/s.143(3) of the Act on 17.03.2021 by accepting the returned income . 3. On examination of case records, it is noticed that the company claimed depreciation of Rs 83,87,835/- @25% on Rs 3,64,42,319/- in respect of intangible assets acquired during the year. It is also seen that the A.O. had vide notice u/s 142(1) dated 13.12.2019 asked for the need of intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate revisional order u/a 263 of the Act in your case. 7. In case, you have any objection to the action proponed above, you are requested to furnish your written submission to the proposed action by 27.03.2022 through e- filing portal or at my office at Room No.411, C-Wing. Pratyakshkar Bhavan, Ambawadi, Ahmedabad. Personal appearance is not compulsory and furnishing of written submission completed in all respect on the above issues shall be treated as sufficient compliance. 8. The proposed proceedings is time barring on 31.03.2023. Hence, you are requested to comply with this notice by the given date and time, failing which, the revision proceedings u/s.263 of the Act shall be finalized on the basis of the material available on record and on the merits of the case which may please be noted. Sd/- (RITA KUMARI DOKANIA) Pr. Commissioner of Income Tax-3, Ahmedabad 5. Referring to the same, ld. Counsel for the assessee pointed out that, as per ld. PCIT, the assessment order was noted to be erroneous on account of the claim of depreciation on intangible assets, amounting to Rs. 83,87,835/- having been allowed to the assessee without making proper inquiry on the issue. Referring to paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn. He thereafter pointed out thatthe ld. PCIT had incorrectly appreciated AS-26 ( Accounting Standard 26 ) to be stating that the value to be attributed to the intangible assets was to be determined by a third party valuer. He drew our attention to AS-26 (copy of which was placed before us) and pointed out that the cost of an internally generated intangible asset as per the said Standard comprisedall expenditure that could be directly attributed, or allocated on a reasonable and consistent basis, to creating, producingand making the asset ready for its use. In this regard, he drew our attention to AS-26 placed before us at page nos. 517 to 561 of the paper-book, more particularly to paragraph nos. 52 and 53 of the same which reads as under:- Cost of an Internally Generated Intangible Asset 52. The cost of an internally generated intangible asset for the purpose of paragraph 23 is the sum of expenditure incurred from the time when the intangible asset first meets the recognition criteria in paragraphs 20-21 and 44. Paragraph 58 prohibits reinstatement of expenditure recognised as an expense in previous annual financial statements or interim financial reports. 53. The cost of an int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired in exchange for shares or other securities of the reporting enterprise, the asset is to be recorded at its Fair Market Value, or the fair value of the securities issued, whichever is more clearly evident. Para 26 of the AS26 was pointed out to us as under; 26. If an intangible asset is acquired in exchange for shares or other securities of the reporting enterprise, the asset is recorded at its fair value , or the fair value of the securities issued, whichever is more clearly evident. 11. He stated that the reference to fair market value in AS-26 is in totally different facts and circumstances, where an intangible asset is acquired in exchange of shares and securities. He stated, therefore, that it is clearly evident from the above that the ld. PCIT had misunderstood and wrongly applied the Accounting Standard AS-26 to the facts of the case to hold that the internally created intangible asset of the assessee by way of designs was to be valued by a third party valuer and the Assessing Officer having not got this valuation done, his acceptance of the value of intangible asset was incorrect and accordingly allowance of claim of depreciation thereon to the assessee. 12. Going for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing claimed by the assessee. That there was no claim by the ld. PCIT that the expenses incurred by the assessee on account of creation of the intangible assets were in any way bogus. He, therefore, contended that in the facts of the issue noted by the ld. PCIT herself, there could not be any prejudice caused to the Revenue. That, on the contrary, if the contention of the ld. PCIT is found to be correct, the assessee would be entitled to claim more expenditure, i.e. 100% of the expenditure incurred on designs as opposed to only depreciation claimed by the assessee on it. 14. The ld. DR, however, stated that there was no infirmity in the assumption of jurisdiction by the ld. PCIT to revise the order of the Assessing Officer and it was a valid assumption of jurisdiction. 15. Having heard both the parties and having carefully gone through the contents of the show-cause notice as also the documents, being AS-26, referred to by the ld. Counsel for the assessee before us, we are inclined to agree with the ld. Counsel for the assessee that the very basis for assumption of jurisdiction by the ld. PCIT in the present case exercising revisionary jurisdiction over the assessment order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurring expenditure. That the ld. PCIT has noted in her notice that the assessee did develop the intangible assets itself by way of developing designs relating to machinery and had valued the intangible assets on the basis of cost incurred for developing designs. Therefore, we find, that even as per the facts noted by the ld. PCIT, the assessee s basis of valuation of the intangible assets was as per that prescribed by AS-26 and the ld. PCIT s belief that the assessee had not followed AS-26 was an incorrect and completely flawed understanding of the Accounting Standard. 18. We completely agree with the ld. Counsel for the assessee that the very basis, therefore, for assumption of jurisdiction under Section 263 of the Act by the ld. PCIT was flawed, based on wrong premises, and therefore, the entire proceedings conducted by the ld. PCIT, we hold, was not valid. 19. Going forward from here, we also agree with the ld. Counsel for the assessee that the only error noted by the ld. PCIT was vis- -vis the valuation of intangible assets, resulting in incorrect allowance of deprecation to the assessee. As noted above, the ld. PCIT was aware that the assessee has valued the intangible asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of notices issued by AO replies furnished by assesseeat the original assessment stage Date Particulars Pgs. Of P/B 28.09.2019 28.09.2019 Assessee s case was selected for scrutiny by issuance of statutory notice dated 28.09.2019 u/s 143(2) of the Act and the issue identified for selecting the case for scrutiny was investment in intangible assets 54-55 13.12.2019 AO, vide notice dated 13.12.2019 u/s 142(1), called upon the assessee to furnish the following details in relation to addition to intangible assets '. Nature of intangible assets added to the block. Details of party from whom assets have been acquired. Agreement for purchase of intangible assets. Details of mode of payment. Valuation report of intangible assets. Business need of the intangible assets 56-57 27.02.2020 Assessee, vide letter dated 27.02.2020, made the following submissions before AO: Assessee is engaged in the business of manufacturing laboratory and medical equipment such as centrifuges, stirrer, shakers, etc.. Assessee is researching various details for developing its own products for manufacturing. Procedure adopted since inception by the assessee was made known to AO and the same is as follows: _ As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 23.11.2020, made following submissions before AO: _ Attention was invited to following contents of earlier reply dated 27.02.2020: Explanation in respect of entire process of researching a particular product / design undertaken by assessee. Documentary evidences furnished in support of the issue on hand. _ Sample working of costing of a design (I-Fuge M18) developed during the year under consideration with working of cost allocation was furnished (Pg.70 of PB). _ Assessee has been consistently following such method in respect of all designs developed in-house. 65-70 12.03.2021 AO, vide notice dated 12.03.2021 u/s 142(1), called upon the assessee to furnish following details / documents: _ Whether any valuation of intangible assets was carried out by any professional valuer for FY 2017-18 or for any earlier year. _ If yes, copy of valuation report, was called for. _ If no, assessee was called upon to state as to why assessee s case should not be referred to a Government Approved Valuer for valuation of intangible assets or assessee may submit a third party valuation report of intangible assets for FY 2017-18. 15.03.2021 Assessee, vide letter dated 15.03.2021, submitted befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct involving testing expenses, purchase of material from various sources and salary to staff are debited to the intangible asset account. The assessee had also pointed out that it had created 66 such designs incurring the total cost of Rs. 3,64,42,319/- and on which deprecation was being claimed. The details of depreciation on intangible assets was submitted and the assessee had also evidenced the cost incurred on creation of such designs by providing ledgers of all expenses incurred in the process along with supporting evidences. The assessee had pointed out that no intangible assets had been acquired by them during the year and, therefore, no question for its valuation arose. That it was developed its own designs and transferring all relevant expenses incurred for this activity to the designated account. A sample working of the costing of a design developed during the year with the working of cost allocation was also furnished and the assessee pointed out that it had been consistently following such method in respect of all designs developed in- house. The assessee was specifically asked whether it had got the valuation of intangible assets carried out by any professional val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitting the same during revisionary proceedings also, the ld. PCIT has not addressed the contentions of the assessee on any aspect at all. She has not pointed out as to why the inquiry by the Assessing Officer was inadequate or improper; she has neither pointed out as to how the explanation of the assessee that the accounting of intangible assets was as per AS-26 was incorrect. On the contrary, on a completely flawed understanding of the Accounting Standard the Ld.PCIT has found the assessee s valuation of intangible assets to be not in accordance with AS-26. The ld. PCIT, we find, has in a very cryptic order dismissed all the detailed and voluminous contentions raised by the assessee as above at paragraph No. 4.3 of the order as under: 4.3 Also, it is noticed from the submission of the assessee that valuation of intangible assets has not been done in the instant case. No third-party valuation has been done in the case of the assessee for the assets on which depreciation has been claimed by the assessee. The Assessing Officer has not made proper inquiries in regard to the valuation of intangible assets for which the assessee has claimed depreciation. 27. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
