HOTSPOT SALES & SOLUTIONS PVT. LTD. ,NOIDA V. PR. CIT , NOIDA

ITA 1139/DEL/2022

AI Insights

The case involves Hotspot Sales & Solutions Pvt. Ltd., which appealed against the order of the Pr.CIT, Noida, disallowing depreciation claimed on goodwill amounting to INR 21,53,41,062. The Pr.CIT had invoked section 263 of the Income Tax Act, 1961, claiming the original assessment was erroneous and prejudicial to the interest of the revenue as the Assessing Officer (AO) had not made adequate inquiries regarding the depreciation claim on goodwill. The Tribunal examined the facts, including the purchase of a retail business division under a slump sale, and the accounting treatment of goodwill as per Ind-AS. The Tribunal concluded that the goodwill was an intangible asset and the depreciation claimed was in accordance with the law, thus the original assessment order, while erroneous, was not prejudicial to the revenue.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312678 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs Smifs Securities Ltd., Malabar Industrial Co. Ltd. vs CIT, Deniel Merchants Pvt. Ltd. vs ITO, Areva T & D India Ltd. vs CIT, Tara Devi Aggarwals vs CIT, Rajmandir Estates (P.) Ltd. vs PCIT, BSES Rajdhani Power Ltd. vs Pr. CIT, Paville Projects (P.) Ltd. vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL; AN
• Assessee Lawyers: PARIKSHIT AGGARWAL
• Keywords: Set aside; Difference of opinion; Change of opinion; Opportunity of being heard; Retrospective amendment; Depreciation; Retraction; Capital Gains; Accommodation entries; Assessment record; Right to appeal; Revision of order; Scheme of amalgamation; Procedural lapse; Prejudicial to interest; Bogus
• Section: 147; 143(3); 263; 32; 68; 2

Judgement Text

"ITA No.1139/Del/2022 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “B” BENCH: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.1139/Del/2022 [Assessment Year : 2017-18] Hotspot Sales & Solutions Pvt. Ltd., C/o- 19A-19B, S Global Knowledge Park, Sector-125, Noida-201301 PAN-AADCH8839A vs Pr.CIT, Noida APPELLANT RESPONDENT Appellant by Shri Parikshit Aggarwal, CA Respondent by Shri Surender Pal, CIT DR Date of Hearing 18.03.2025 Date of Pronouncement 29.04.2025 ORDER PER MANISH AGARWAL, AM : The present appeal has been filed by the assessee seeking to assail the order u/s 263 of the Income Tax Act, 1961 [“the Act”] dated 27.03.2022 of Ld. Pr. Commissioner of Income Tax, Noida [“Ld. Pr. CIT”] arising from the assessment order dated 20.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18. 2. Brief facts of the case are that the assessee is a Private Limited Company and return for year under appeal was filed on 07.11.2017 declaring loss of INR 34,95,88,004/-. The case was selected for complete scrutiny under CASS and the order was passed under section 143(3) of the Act by making addition under ITA No.1139/Del/2022 Page | 2 section 68 of the Act at INR 1,49,35,290/- on account of cash deposits during demonetization period and allowed the loss so assessed to be carried forward for next year. 3. Thereafter, the Ld. Pr.CIT in terms of notice issued on 25.02.2022 invoked the provision of section 263 of the Act and asked the assessee to show cause as to why the assessment order be not cancelled/modified as it is erroneous and pre-judicial to the interest of the Revenue as the AO has allowed the claim of depreciation of INR 21,53,41,062/- without making any enquiries in this regard. After considering the submissions of the assessee, the Ld. Pr. CIT vide impugned order has held that the assessment order passed on 20.12.2019 is erroneous in so far it is prejudicial to the interest of revenue and disallowed the depreciation claimed at INR 21,53,41,062/- on goodwill being intangible asset and direct the AO to pass a consequential effect order. 4. Against such order, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:- 1. “That on law, facts & circumstances of the case, the Worthy Pr. CIT has grossly erred in assuming jurisdiction u/s 263 even when: 1.1. The original assessment order passed u/s 143(3) does not satisfy the twin conditions of being an 'erroneous order' and 'prejudicial to the interest of revenue'. 1.2. The Worthy Pr. CIT has erred in setting aside the assessment order u/s 143(3) and in directing the AO to make assessment afresh on the ground that the assessment order was passed under inadequate enquiry. 1.3. The Worthy Pr. CIT has erred in holding that the assessment order requires to be revised u/s 263 since the depreciation of Rs. 21,53,41,062/- on intangible assets claimed by the assessee is allegedly on assets under development and not put to use even when the said view of the Worthy Pr. CIT is factually incorrect and the said factually incorrectness was pointed out to him in proceedings u/s 263 also. ITA No.1139/Del/2022 Page | 3 1.4. The Worthy Pr. CIT has erred in making addition on his own in the impugned order u/s 263 on account of disallowance of depreciation of Rs. 21,53,41,062/- allegedly on intangible assets under development and not put to use even when the said view of the Worthy Pr. CIT is factually incorrect and the said factually incorrectness was pointed out to him in proceedings u/s 263 also and no addition on correct facts is warranted in this case. 1.5. The Worthy Pr. CIT failed to appreciate that in proceedings u/s 263, he cannot substitute the views of AO unless the view of AO is totally unsustainable. 1.6. The Worthy Pr. CIT has conducted the impugned proceedings u/s 263 in extreme haste and without affording reasonable opportunity of being heard to the appellant. 2. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.” 5. Since all the grounds of appeal are in relation to action of Ld. Pr.CIT in holding the assessment order as erroneous and pre-judicial to the interest of Revenue and thereby disallowing the depreciation claimed by assessee on Goodwill, thus all are taken together for consideration. 6. During the course of hearing, the Ld.AR of the assessee submitted that the assessee company had acquired a retail business division of New Spice Sales and Solutions Limited (formerly Spice Retail Limited) and Cellucom Retail India Pvt. Ltd. and Saholic Business Division from Spice Online Retail Private Limited (now Spice Online Private limited) under slump sale as going concern basis. 7. As per the purchase agreement, the purchase consideration was paid at INR 86,13,64,249/- which is the differential amount of assets and liabilities taken over by the assessee company and is on account of goodwill. In the books of accounts, the said amount of goodwill is shown under the head ITA No.1139/Del/2022 Page | 4 “intangible asset under development” and no amortization was claimed in the Profit & Loss Account. However, while computing the income under the head “business and profession”, the company had claimed depreciation/amortization @ 25% which comes to INR 21,53,41,062/-. The detailed working of the amount of goodwill is given in the audited financial statements in Note No.28 to Balance Sheet which is available at Paper Book page 35. The Ld. CIT(A) observed that the AO had allowed incorrect claim of depreciation without making any enquiry thus, the assessment order is erroneous and pre-judicial to the interest of the Revenue and therefore, disallowed the deprecation claimed by the assessee. 8. Before us, the Ld.AR for the assessee submitted that the assessee has purchased/acquired running division of New Spice Sales and Solutions Limited w.e.f. 01.06.2016 as a going concern under slump sale where the purchase consideration was paid at INR 86,13,64,249/- being the difference between assets and liabilities taken over and claimed as goodwill. In the financial statements, the said amount of goodwill is shown as a negative figure in Note No.11 to Balance Sheet where this amount is presented under head “capital reserve” which is available in Paper Book page 20 of the assessee. The Ld.AR for the assessee also stated that in the said notes, a reference of Note No.28 is made wherein the working of Goodwill from acquisition of business division under slum sales agreement is appearing as available in Paper Book page 35. He further submits that the assets acquired under such slum sales were added to the respective heads of fixed assets which are appearing in statement of fixed assets in Note No.3 & 4 of the Balance Sheet available at page 26 of the ITA No.1139/Del/2022 Page | 5 Paper Book. The Ld.AR for the assessee submits that as a policy decision, no depreciation was claimed on such amount in the books of accounts. However, since the same is a intangible assets in the shape of Goodwill, in the return of income, depreciation was claimed @ 25% which comes to INR 21,53,41,062/-. All these facts were available before the AO while making the assessment who after duly considering the same has allowed the claim of the assessee. The Ld.AR further submitted that merely because the AO has not discussed this issue in the body of assessment order, it cannot be said that no enquiry was made. The amount of Goodwill was paid by the assessee and shown as Negative figure under capital reserve. The ld.CIT(A) has failed to appreciate the fact that it is Goodwill and an intangible asset thus the assessee is entitled for depreciation on the same. Therefore, the assessment order may be erroneous but it is not prejudicial to the interest of revenue and the twin condition provided in section 263 are not fulfilled. For the clam of depreciation on goodwill, ld. AR placed reliance on the judgement of Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd. 348 ITR 0302 (SC) where it is held as under : “Depreciation u/s 32-Goodwill-Asset-Allowability-Assessee claimed deduction of Rs.54,85,430/- as depreciation on goodwill-AO held goodwill was not an asset falling under Explanation 3 to S.32(1)-Issue as to whether goodwill is an asset within meaning of S.32 and whether depreciation on ‘goodwill’ is allowable under said Section-Held, principle of ejusdem generis would strictly apply while interpreting said expression which finds place in Explanation 3(b)-“Goodwill” is an asset under Explanation 3(b) to S.32(1)-Appeal dismissed.” 9. He also placed reliance on the certain other judgements in this regard and submitted that the Ld. Pr. CIT has invoked the provisions of Explanation-2 of section 263 to hold the assessment order as erroneous and prejudicial to the ITA No.1139/Del/2022 Page | 6 interest of revenue as AO has made no enquiry. But since depreciation on goodwill is an allowable expenditure in terms of judgement of Hon’ble Supreme court in the case of Smifs Securities Ltd therefore, there was no loss to revenue who ultimately has to allow the depreciation to the assessee. Accordingly, ld.AR requested for the cancellation of the order of Ld.Pr.CIT. He also placed reliance on various judgements which are tabulated as under:- [1] Areva T & D India Ltd. SLP(C) (CC) 21227/2012 (SC); [2] The Peerless General Finance & Investment Co.Ltd. 416 ITR 1 (SC). [3] Areva T & D India Ltd. & Ors. [2012] 345 ITR 421 (Del.HC); [4] Dabur India Ltd. [2021] 126 taxmann.com 259 (ITAT, Delhi); [5] Triune Energy Services Pvt.Ltd. 96 taxmann.com 580 (ITAT, Delhi); [6] Cyber India Online Ltd. [2013] 38 CCH 5 (ITAT, Delhi); and [7] M/s I&B Seeds Pvt.Ltd. [2022] 142 taxmann.com 274 (ITAT, Bang.). 10. On the other hand, the Ld.CIT DR for the Revenue vehemently supported the order of the Ld. Pr. CIT and submits that Ld.Pr.CIT placed reliance on the Explanation-2 of section 263 of the Act wherein it is provided that if in the opinion of the Ld.Pr.CIT, the order is passed without making enquiries or verification, the same could be held as erroneous in so far as pre-judicial to the interest of the Revenue. He further filed a written submission which is reproduced as under:- “In this regard, it is humbly submitted that Explanation 2 has been inserted in Section 263 of I.T. Act by Finance Act 2015, w.e.f. 01.06.2015, which is reproduced below: \"Explanation 2. For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous ITA No.1139/Del/2022 Page | 7 in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner- (a) the order is passed without making inquiries or verification which should have been made, (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.\" With reference to Explanation 2 of Section 263, in the judgment in PCIT vs Paramount Propbuild (P.) Ltd. 161 taxmann.com 85 (Delhi) [2024] the Hon'ble High Court of Delhi has held as under: \".......23. Therefore, in light of the findings which are unravelled from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. that the entities M/s. Sarvottam Securities Ltd. and M/s. Upaj Leasing & Finance Pvt. Ltd. are the shell companies of an entry operator, the relevance of ascertaining the genuineness and creditworthiness of the transactions cannot be undermined. Additionally, the genuineness and creditworthiness of the transactions may not be satisfactorily determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bonafide. As observed in N.R. Portfolio (P.) Ltd. (supra], the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. 24. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in ITA No.1139/Del/2022 Page | 8 question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which at least was expected to have been made by the AO. 25. At this juncture, it is apposite to point out that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in the assessment order nor the assessment record duly reflects that the AO has done inquiry in the light of the findings of the investigation report. We find that the present is a fit case to invoke the revisional powers under Section 263 of the Act. 26. Thus, so far as question (a) is concerned, we hold that the ITAT was incorrect in holding that the AO had duly made the inquiry in the instant case and considered the material produced before it. Furthermore, the ITAT also erred in holding that the PCIT has wrongly assumed the jurisdiction under Section 263 of the Act as the assessment order is not only prejudicial to the interests of the Revenue but also erroneous in nature. 27. In so far as question (b) is concerned, it is crystal clear that Explanation 2 to Section 263 of the Act will be applicable in the instant case as the said explanation was inserted vide Finance Act, 2015 with ITA No.1139/Del/2022 Page | 9 effect from 01 June 2015 and the case of the assessee belongs to AY 2016-17. 28. Thus, in the light of the foregoing discussion, we are of the view that the aforementioned questions of law need to be answered in favour of the Revenue and against the assessee. We accordingly do so. 29. In view of the aforesaid, we set aside the ITAT order dated 14 February 2022. 30. The appeal is accordingly allowed and disposed of, alongwith pending applications, if any.....” In the above case, it is humbly submitted that in addition to the oral arguments submitted by the undersigned, the following Judgments may kindly be considered with regard to validity of proceedings u/s 263 of 1.T. Act, 1961. Various judgments relied upon by the Revenue, in addition to the above, are as under:- 1. Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017. \"The relevant judgment of Hon'ble Calcutta High Court in this case is also enclosed. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry.\" 2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) \"where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, ITA No.1139/Del/2022 Page | 10 exercise of jurisdiction by Commissioner under section 263(1) was justified\" 3. Hon'ble Supreme Court in the case of Tara Devi Aggarwals v. CIT [973] 88 ITR 323 (SC) \"The words of the section 338 of 1922 Act enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the circumstances of the case justify when he considers that the order passed was erroneous insofar as it is prejudicial to the interests of the revenue. It is not, as prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. Therefore, the Commissioner under section 338 of 1922 Act has ample jurisdiction to cancel the assessment and may Initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof. In view of aforesaid, the order passed by the High Court could not be disturbed and the appeal was to be accordingly dismissed. Note: Decision in favour of revenue.\" 4. Rajmandir Estates (P.) Ltd. Vs PCIT [70 taxmann.com 124 (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512] \"Where Hon'ble Calcutta High Court held that where assessee with a small amount of authorised share capital, raised a huge sum on account of premium and chose not to go in for increase of authorised ITA No.1139/Del/2022 Page | 11 share capital merely to avoid payment of statutory fees and Assessing Officer passed assessment order without carrying out requisite enquiry into increase of share capital including premium received by assessee, Commissioner was justified in treating assessment order as erroneous and prejudicial to interest of revenue\" 5. Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC) \"Hon'ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified\" 6. Order of Hon'ble ITAT F-Bench in the case of PTC Impex (India) Pvt. Ltd. Vs CIT, ITA No. 2860/Del/2010 dated 03.04.2018 Hon'ble ITAT Delhi F- Bench has held as under: \"21. We have carefully considered the rival contention and also gone through the order of the Ld. CIT u/s 263 and the order of the assessing officer passed u/s 143 (3) of the act which was subject to revision by the CIT. We have also perused the various case laws cited before us by the parties. According to section 263 of the Act, Commissioner of Income tax can resort to corrective measures by revising the assessment order passed by the Assessing Officer, if after examining records such assessment order passed by the Assessing Officer, he (the Commissioner of Income-tax) found that such an order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. In Malabar industrial Co Ltd versus CIT 243 ITR 83 (SC) Hon'ble Supreme Court held the Commissioner has satisfied of twin conditions namely (i) that the order is erroneous, (ii) that it is prejudicial to the interest of revenue. As held in several judicial precedents that Commissioner does not ITA No.1139/Del/2022 Page | 12 have power to revise the order of the Ld. assessing officer where there are two views possible and the Ld. assessing officer has taken one of the possible views. Further, where the Ld. assessing officer has made some enquiry and has reached at a conclusion. Therefore, on debatable issues and where there is absence of Lack of Inquiry\" the powers of the CIT cannot be exercised under section 263 of the act. There exists a difference between „Lack of Inquiry and inadequate Inquiry\". In the present case on all the four issues raised by the Ld. CIT, in the paper book submitted by the assessee or in the arguments raised by the Ld. authorized representative we did not find that Ld. AO has made any enquiry on all ITA No. 2860/Del/2010 A Y 2005-06 PTC Impex (India) pvt. Ltd Vs. Commissioner Of Income tax the 4 issues. Therefore, according to us there is no Inquiry made by the Ld. assessing officer on the issues raised by CIT in proceedings under section 263 of the act. The arguments of Ld. Authorized representative on the issue with respect to cash deposited in the bank account, loan repaid, bank interest on fixed deposit receipt and absence of narration in the bank statements were more on the aspect that no such addition can be made in the hands of the assessee. However, nothing is lead before us that makes us to ascertain that Ld. AO during the course of assessment proceedings have inquired about all those things at all. Merely because there are disallowances under section 10 B of the act and addition on account of undisclosed sales which is precisely made on the basis of the information available with the Ld. assessing officer in tax audit report only, it cannot be said that on these 4 issues the Ld. AO has made any enquiry. The Ld. assessing officer notes in the assessment order that despite request the assessee has not produced the complete books of accounts along with the bills and vouchers before him. The Ld. authorized representative vehemently referred to page No. 19 of the order of the Ld. CIT (appeals) dated 15/3/2010 wherein it is stated that books of accounts and vouchers were produced before the assessing officer ITA No.1139/Del/2022 Page | 13 on 26/12/2007 and 29/12/2007 (Saturday) but not taken on record by the AO. The assessment in the present case was framed under section 143 (3) of the act on 31/12/2007. This itself shows that assessing officer has not looked at the books of accounts which are allegedly produced before AO as per version of the assessee on 26/12/2007. This too is the submission of the assessee before CIT (A) which has not been adjudicated by CIT (A). Even otherwise, mere production of books of accounts does not make the issues before us fall in to the category of inadequate inquiry If we agree to such an argument then, in all cases where the books of accounts were produced before the Id AO, then the case would fall outside the purview ITA No. 2860/Del/2010 A Y 2005-06 PTC Impex (India) pvt. Ltd Vs. The Commissioner Of Income tax of section 263 of the act. Further No records of communication by the AO to assessee and reply by assessee to Id AO was shown to us to show on these four issues that the Assessing Officer had applied his mind on any of them. According to us case before us is of Jack of inquiry and not absence of any inquiry All judicial precedents relied up on before us related to, absence of adequate inquiry but none of them dealt with the issues of complete lack of inquiry as in case before us. Hence, we do not have any hesitation in upholding action of id CIT in invoking his jurisdiction u/s 263 of the act. Hence, order passed u/s 263 of the act by the Id CIT is upheld and appeal of the assessee is dismissed.\" 7. Order of Hon'ble HIGH COURT OF KARNATAKA in the case of CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012 \"Section 263 is a section which enables the Commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the revenue. This provision occurs in a taxing statute, the object of which is to raise revenue for the State, and section 263 is an enabling ITA No.1139/Del/2022 Page | 14 provision conferring jurisdiction on the Commissioner to revise the order of the authorities below in certain circumstances particularly when it is erroneous and prejudicial. One can at once realize that the provision is intended to plug leakage to the revenue by an erroneous order passed by the lower authorities, whether by mistake or in ignorance or even by design. It makes little difference as to for what reasons the order is passed by the lower authority, so long as it becomes erroneous and prejudicial to the interest of the revenue. Ultimately, the object is to ensure that leakage of the revenue is plugged and some tax due to the State not reaching the coffers of the State is prevented by exercise of revisional jurisdiction of the Commissioner. [Para 18] 8. Order of Hon'ble Delhi ITAT in the case of CIT vs. Apollo Tyres Ltd., 65 ITD 263 \"A plain reading of section 263 clearly indicates that the Commissioner may call for and examine the records of any proceedings under the Act. For this purpose, he is not required to show as to what reasons prompted him to call for and examine the record. The provisions also do not prescribe any limitation that the Commissioner should suo motu call for and examine the record and he cannot take into consideration or rely upon any report or information which may be supplied to him by the other officers of the department or on the basis of any information which he may obtain from any other source. The authority of the Commissioner to call for and examine the record on the basis of any information from any source or suo motu is purely an administrative matter. If after calling for and examining the records, the Commissioner considers that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, then subsequent proceeding acquires quasi-judicial character. On comparison of sections 263 and 264 it would be seen that in section 264 the Commissioner may, either of his own motion or on an application by the assessee, call for the ITA No.1139/Del/2022 Page | 15 records of any proceeding under the Act. However, in section 263 the expression 'on his own motion' is absent. In the absence of such an expression and also in view of the fact that there is no restriction or limitation on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental Officer, the Commissioner could validly call for and examine the record of the assessee in the instant case for the relevant year pursuant to a letter of the Assessing Officer containing a proposal under section 263. Therefore, there was no merit in the contention of the assessee in this regard.\" 9. Order of Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs Addl. CIT, 99 ITR 375 \"Where it is held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return and it was observed that reason is obvious. The position and functions of the ITO are very different from that of civil court. 10. Order of Hon'ble Delhi Bench in the case of Perfetti Van Melle India Pvt. Ltd., ITA No. 3046/Del/2016 for A.Y. 2009-10 order dated 11.01.2019. 11. We have heard both the parties and perused all the records. It is pertinent to note that the assessee is engaged in manufacturing of a variety of confectionary productions which includes Big Babool, Alpenlibe, Centre Fresh, Center Fruit, Center Shok, Chater Pater, Chlor-mint, Choco-tella, Cofitos, Happydent White, Protex Happydent, Marbels, Mentos etc. From these products it can be seen that all products are not that of pharma, chlor-mint. ayurved based products. There are confectionary products as well. The Pr. CIT after perusal of the quarterly statement furnished by the assessee company with the Commissioner, Central Excise, Meerut for F.Y. ITA No.1139/Del/2022 Page | 16 2008-09, noticed that the assessee company had also manufactured other products such as 'chewing gum', 'toffee' and 'bubble gum' in addition to manufacturing of Pharma Products for which the assessee company is not entitled for deduction u/s 80IC of the Act as these article or things are not specified in the Fourteenth Schedule. But the Assessing Officer has not made any enquiries or verification which should have been made before allowing any relief u/s 801C of the Act to the assessee company. The decision of the Hon'ble Supreme Court in Malabar Industrial Company Ltd. vs. CIT (243 ITR 83) (SC) held that the Commissioner has to satisfy himself of both the conditions, firstly order being erroneous and 8 ITA No. 3046/Del/2016 secondly order being prejudicial to the interest of revenue. Both these tests have been seen by the Principal Commissioner of Income Tax in the present case and aptly applied in the present case. It is also held by the Hon'ble Apex Court that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. Thus, the Pr. CIT has looked into the aspect of the Assessment Order in the present case to the extent of erroneous and thus, Section 263 of the Act is attracted in the present case. Section 263 of the Act is not invoked simply for correcting mistake or error committed by the Assessing Officer in the present case. It can be observed that the Pr. CIT has considered all the contentions of the assessee and thereafter rightly come to the conclusion that the Assessing Officer failed to consider the fact that whether the assessee is entitled for claim under Section 80IC or not in respect of the products which do not come under the ambit of Fourteenth Schedule. It can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which ITA No.1139/Del/2022 Page | 17 should have been done by the Assessing Officer before allowing the claim u/s 80IC of the Act. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceeding's u/s 263 of the Act. The present case is covered by the decision of the Hon'ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs. Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Hon'ble Supreme Court held as under: \"In all these cases, we find that the Commissioner of Income Tax had passed 9 ITA No. 3046/Del/2016 an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petitions are dismissed.\" Thus, in the present case the Assessing Officer has not properly adjudicated the issue of claim u/s 80IC before allowing the same to the assessee company, therefore, the Pr. CIT has rightly invoked Section 263 of the Act and passed the order. Therefore, the Order under Section 263 of the Income Tax Act, 1961 passed by the Principal Commissioner of Income Tax it just and proper. There is no need to the same. The appeal of the assessee is dismissed.” 11. Order of Hon'ble Delhi Bench in the case of Ramesh Kumar, ITA No. 1982 Del/2013 for A.Y. 2014-15 order dated 25.01.2018 ITA No.1139/Del/2022 Page | 18 16. We have heard the arguments of both the parties and gone through the facts on record. All the arguments, facts, decisions, case laws cited by the Ld. AR and the Ld DR have been perused and duly considered for adjudication to the notice issued by the Assessing Officer pertaining to the Long Term Capital Gains the assessee has replied that he had purchased the shares on 16/03/2012 and sold in July 2013 and received sale proceedings of Rs. 11,29,599/-. It was replied that the original shares purchased were of M/s Panchshul Marketing Ltd. which stands merged with M/s Kailash Automobile and the shares of Kailash Automobiles were allotted in the ratio of 1:1. Beyond this information there were no enquiries conducted by the Assessing Officer. The reliance of the Ld. AR on the case of Gabriel India Ltd is of no help to the assessee as it enunciated two principles namely i) the order is erroneous ii) by the virtue of the order being erroneous prejudice is caused to the interest of the Revenue. In the instant case there has been an information with the department which has been passed on to the Assessing Officer for verification and failure of the Assessing Officer to verify the transactions in the light of the information available makes the order erroneous and also prejudicial to the interest of the Revenue. The Assessing Officer has mentioned about inputs from investigation wing in assessment order but has not examined absolutely anything regarding the genuinity of the transactions. The Ld PCIT had enough material in his custody to prima facie to show that the tax which was lawfully 14 exigible has not been imposed. Similarly in the case of Sunbeam Auto the courts have held that in the case of lack of enquiry course of action under section 263 is valid. In this case on the facts of the record it can be observed that the Assessing Officer has not applied his mind regarding the allowability of the exemption of the Long Term Capital Gain. This is not the case of inadequate enquiry but is a clear case of lack of enquiry which makes it different from the case of Nirav Modi (supra). Obtaining of the information about the transaction cannot be taken as akin to ITA No.1139/Del/2022 Page | 19 enquiring about the information. This is a clear case of no enquiry for which the Ld. PCIT has rightly invoked the provisions of Section 263. We also find that the Ld. PCIT has clearly brought about the error in the assessment order and has also directed the Assessing Officer to take remedial action to take action as per the law after providing due opportunity to the assessee. Thus, it can be said that the Ld. PCIT has not exceeded his jurisdiction nor directed the Assessing Officer to pass the assessment order in any particular way thus not interfering in the judicial function of the Assessing Officer. 17. Ongoing through the facts, it can be observed that the Assessing Officer has not conducted any enquiry and this is a clear case of lack of enquiry not a case inadequate enquiry Further non application of mind by the Assessing Officer can be easily gauzed from the fact that the information available with the Assessing Officer has not been utilised during the assessment proceedings which makes the case fit for applying the provisions of explanation 2 (a) of section 263. Thus based on the facts on record the contention of the assessee cannot be held to be valid in which are detailed as under:- (a) The order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the revenue: The order passed has been found to be erroneous and prejudicial to the interest of the revenue as per the case law cited and onf acts of the case. (b) The assessee is not covered in any of the conditions mentioned in 15 Explanation 2 of Section 263(1): The assessee has found to be squarely covered by the provisions of section 263(1) Explanation 2 as no enquiries or verification has been conducted which should have been made by the Assessing Officer. (c) Merely because the CIT may not agree to the order of the Assessing Officer just due to change of opinion, the said orders cannot be treated as an erroneous order prejudicial to the interest of ITA No.1139/Del/2022 Page | 20 Revenue: This is not a case of the Principal CIT not agreeing to the order of the Assessing Officer and nor a case of change of opinion. In fact that Assessing Officer has nor formed any opinion in allowing the long term capital gains and practically has not examined the issue at all. (d) There is a distinction between \"lack of inquiry\" and \"inadequate inquiry\". If there was any inquiry, even if it was inadequate, it does not give right to the Commissioner to pass orders under section 263 merely because of a different opinion From the assessment order questionnaire it can be unequivocally held that this is a clear case of lack of enquiry. (e) The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded There are no fishing or ruin enquiries conducted by the Ld. Principal CIT nor directed the Assessing Officer to conduct such enquiries. (f) The assessee has already furnished all the documentary evidences which proves that transactions related to sale and purchase of shares are genuine There is absolute difference between enquiry calling of information, investigation and examination. From the action of the Assessing Officer it can be said that no enquiry has been conducted in this case. (g) Merely because the stock price moved sharply, the assessee is not to be 16 blamed for bogus transactions where he has purchased and sold the stocks through registered brokers and confirmed by valid contract notes as per law: The order u/s 263 has not been based on the stock price but it was based on the information and extensive investigation and the conclusion drawn thereof by the revenue extensive investigation by the department. (h) The transactions cannot be brushed aside on suspicion and surmises where the transactions of the shares are genuine: The Ld. ITA No.1139/Del/2022 Page | 21 Principal CIT has invoked the provisions of section 263 based on the valid tangible information which has been extensively investigated by the department as the Assessing Officer has failed to discharge his statutory duties in accordance with the Income Tax Act which led to the order being erroneous and prejudicial to the interest of the revenue. 18. Hence keeping in view the entire facts of the case, the judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 wherein the action under section 263 is upheld when the Assessing Officer has accepted the statement of account filed by the Assessee without making any enquiry, the judgment of Hon'ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. which held that in the case where Assessing Officer did not make any proper enquiry, the Ld. PCIT is correct in directing the Assessing Officer to carry thorough and detailed enquiry. 19. Ongoing through the questionnaire, assessment order, we have no hesitation to say that the Assessing Officer has not applied his mind to the issue of share transactions for which the detailed information is available regarding the suspicious nature of the transactions. Accordingly, to us, based on the facts and circumstances, the case before us is a case of absolute lack of enquiry but not a case of inadequate enquiry by him. Hence, order passed u/s 263 of the act by the Id CIT is upheld and appeal of the assessee is dismissed.\" 12. Order of Hon'ble Delhi Bench in the case of Shanker Tradex Pvt. Ltd. vs. PCIT, ITA No. 2999/Del/2017 for A.Y. 2007-08 order dated 16.04.2018. \"Thus, it can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer though reopened the assessment proceedings did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves ITA No.1139/Del/2022 Page | 22 that the order is passed without making inquiries or verification which should have been made by the Assessing Officer. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceedings u/s 263 of the Act. The present case is covered by the decision of the Hon'ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Hon'ble Supreme Court held as under: \"In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. 14 ITA No. 2999/Del/2017. The Special Leave Petitions are dismissed.\" Thus, in the present case the Assessing Officer has though rightly re-opened the Assessment Proceedings has not properly adjudicated the issue for reopening therefore, the Pr. CIT has rightly invoked Section 263 of the Act and passed the order. Therefore, the Order under Section 263 of the Income Tax Act, 1961 passed by the Principal Commissioner of Income Tax is just and proper. There is no need to interfere with the same. The appeal of the assessee is dismissed. 13. Order of Hon'ble Delhi Bench in the case of Surya Financial Services Ltd. vs. PCIT [2018-TIOL-74-ITAT-DEL] order dated 08.01.2018 ITA No.1139/Del/2022 Page | 23 \"6.5 In view of above, there is absolutely no dispute that the AO has not made any enquiry regarding the accommodation entry pertaining to the assessee specifically which was found during the course of search and investigation in SK Jain Group as highlighted by the Pr. CIT. Once adequate or proper enquiry has not been done, then in terms of Explanation 2 inserted in section 263 of the Act by the Finance Act, 2015, w.e.f. 1.6.2015, the assessment order is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. Hence, the present case is squarely covered by the decision of the ITAT, 'G' Bench, passed in ITA No. 2158/Del/2017 (AY 2009-10)=2017-TIOL-1775-ITAT-DEL in the case of Surya Jyoti Software Pvt. Ltd. vd. Pr. CIT, because in both these cases the order u/s. 263 of the Act has been passed by the Ld. Pr. CIT-8, New Delhi, information was received from Investigation Wing that the assessee has received accommodation entries from Sh. SK Jain, assessments were reopened u/s. 147 of the Income Tax Act, 1961 on the basis of above information and assessment completed without making any addition on account of accommodation entry taken and the Ld. Pr. CIT's order u/s. 263 of the Act on account of the fact that the AO had not taken into consideration the material seized during search in the case of Sh. SK Jain. We further find that the present is also covered by the decision of the Hon'ble Supreme Court of India in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017 2017-TIOL-455-SC-IT, wherein the Hon'ble Supreme Court of India has dismissed the SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the AO, simply directed the AO to carry thorough and detailed inquiry. 6.6 In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we hold that the Ld. Pr. CIT ITA No.1139/Del/2022 Page | 24 has rightly exercised his jurisdiction under section 263 of the Act in setting aside the order of the Assessing Officer being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we confirm the order of the Ld. Pr. CIT and dismiss the grounds raised by the assessee before us. 7. In the result, appeal of the assessee is dismissed.\" 14. Hon'ble High Court of Delhi in the case of CIT v. Ashok Logani [2011] 347 ITR 22 (Delhi) \"No doubt, the order-sheet showed that the Assessing Officer had asked the assessee to explain cash found. However, whether the Assessing Officer had, in fact, gone into the issue and accepted the claim of the assessee or not was not discernible from the assessment order. No doubt, the Assessing Officer is not supposed to write the orders in detail in the same manner as a judicial officer is supposed to write the judgments. At the same time, it could not be ignored that in the instant case huge cash of Rs. 62,30,300 was found at the time of search and on that date, the assessee had surrendered a sum of Rs. 61.30 lakhs and offered the same for tax. However in his income-tax return, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. In such a scenario, there should have been at least a brief discussion recording a satisfaction on the explanation offered by the assessee. There were two very important features, in the instant case. Those were: First, keeping cash of Rs. 62.30 lakhs, part of which belonged to his sole proprietorship firm, but another part to a private limited company of which he was the director at residence, would raise certain doubts. Though in his letter the assessee had stated that he had kept the cash at his residence in safe custody, that aspect needed to be properly examined. ITA No.1139/Del/2022 Page | 25 Secondly, before the Tribunal, the assessee had given an explanation that cash in hands in the books of account of firm was Rs. 18,17,202 and in the books of the company was Rs. 18,78,518. Balance amount of Rs. 4,34,580, excluding Rs. 21 lakhs surrendered, was explained by the assessee as cash as per his own books. Curiously, the explanation furnished before the Assessing Officer, as recorded by the Commissioner in reply to show-cause notice, was altogether different. That would give an impression that it might be an afterthought on the part of the assessee to explain the cash. [Para 10] Under those circumstances, the Assessing Officer was required to go into that issue in proper perspective and could not be perfunctory in his approach. The Assessing Officer, in the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the assessee, that statement was retracted. In a case like the instant one, it was necessary for the Assessing Officer to at least reflect that the retraction was proper. Another factor which was to be highlighted was that the entire cash belonging to two firms was found at the residence. (Para 11] In the aforesaid circumstances, the Commissioner held the view that the matter was not examined by the Assessing Officer. It was reasonably fit case for exercising revisionary jurisdiction under section 263. After all, the Commissioner gave another chance to the assessee to explain the source of cash. (Para 12) Once it was found that there was no proper consideration of the issue by the Assessing Officer, the very foundation of the order of the Tribunal was knocked off. Thereafter, the Tribunal had ventured to undertake the exercise by itself satisfying about the explanation tendered by the assessee which it could not do. When the Commissioner passed the orders under section 263, at that stage he was only required to find out as to whether the income had escaped ITA No.1139/Del/2022 Page | 26 assessment and the order was prejudicial to the interest of revenue. [Para 13] Since those conditions were satisfied and the matter was relegated to the Assessing Officer to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order passed by the Commissioner invoking his power under section 263 and keeping in view the scope of that provision. [Para 14] One has to keep in mind that against the orders passed by the Assessing Officer, the revenue is not given right to file an appeal as there is no such provision. Limited jurisdiction is given to the Commissioner to revise such orders, if he finds that the same is prejudicial to the interest of revenue. On the facts of the instant case, when it was found that there was no proper consideration by the Assessing Officer to the issue at hand and he left many loose ends, that too in a case where huge cash was found during survey most of which was surrendered by giving statement at the time of search, though retracted and sought to be explained afterwards, it was necessary for the Assessing Officer to properly adjudicate upon that issue and the assessment order should have at least reflected that he was satisfied with the explanation disclosing source of the cash found, and that there was a proper and valid retraction. [Para 16] As a consequence, the Tribunal's order was to be set aside and the order of the Commissioner passed under section 263 was to be restored. (Para 17]\" 15. Hon'ble ITAT Delhi in the case of Pooja Gupta in ITA No 4057/Del/ 2018 dated 31.01.2019 \"The ITAT Delhi has discussed the validity of action under section 263 in respect of penny stock matters. The Tribunal has referred to the detailed SOP issued by the CBDT, CBDT Instruction dt 16.03.2016 on penny stock/LTCG, and other specified parameters in this order, and held that the order u/s 263 was justified since ITA No.1139/Del/2022 Page | 27 there was complete lack of inquiry with regard to the perspective for which the case was selected for scrutiny, and that the AO had merely relied on the assessee's submissions.\" 16. In the judgment of BSES Rajdhani Power Ltd. vs Pr. CIT, Delhi 88 taxmann.com 25 (Delhi) [2017] Hon'ble High Court of Delhi has held as under: Section 263 of the Income-tax Act, 1961 Revision Of orders prejudicial to interest of revenue (Scope of) Assessment year 2010- 11-Whether Commissioner has power to consider all aspects which were subject matter of Assessing Officer's order, if in his opinion, they were erroneous, despite assessee's appeal on that or some other aspect -Held, yes [Paras 15 & 16]. 17. In the Judgment in CIT vs Paville Projects (P.) Ltd. 149 taxmann.com 115 (SC) [2023] the Hon'ble Supreme Court held as under: 7.3 Applying the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under section 263 not vested in it. The erroneous assessment order has resulted into loss of the Revenue in the form of tax. Under the Circumstances and in the facts and circumstances of the case narrated hereinabove, the High Court has committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under section 263 of the Income-tax Act. 8. In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the ITA No.1139/Del/2022 Page | 28 High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under section 263 of the Income-tax Act is hereby restored. In result, present appeal is allowed. However, in the facts and circumstances of the case, there shall be no order as to costs. Submitted for kind consideration of the Hon'ble Bench.” 11. The Ld.CIT DR for the Revenue thus requested for the confirmation of the order passed by the Ld. Pr. CIT under section 263 of the Act. 12. We have heard the rival submissions and perused the material available on record. In the instant case, the Ld. Pr. CIT has observed that the assessee has claimed depreciation on the amount of intangible assets shown under the head “intangible assets under development” and since the same was not put to use, depreciation could not be claimed on it. Therefore he disallowed the depreciation claimed by the assessee. After perusal of the Paper Book filed by the assessee, we find that in Note No.28 of the balance sheet, the assessee has provided the working of the figures of goodwill which is reproduced as under:- ITA No.1139/Del/2022 Page | 29 13. The assessee has purchased the retail undertaking division from Spice Retail Ltd. under slum sale agreement as a going concern and the management has valuation of business according to which goodwill was valued at Rs. 86,13,64,249/- which is the difference between the value of assets and liabilities taken over by the assessee and was paid as the purchase consideration. Though for the purpose of accounting and presentation in Balance Sheet, the assessee has shown it under the head “Capital Reserve” as a negative figure and did not claim any depreciation in the books. It is also seen that the assessee has duly submitted before the Ld. Pr.CIT that in the return of income, it was inadvertently shown under the head “intangible assets under development” instead of ‘intangible assets”. Regarding non-amortization of the same in the books of accounts, it was submitted by the assessee before the Ld. Pr.CIT that the company is following Ind-AS while preparing the financial statements which prescribed as under:- ➤ “All identified assets and liabilities will be accounted at their carrying amounts, i.e. no adjustment would be made to reflect their fair values unlike in case of non-common control business combinations. ➤ Balance of retained earnings in the books of acquiree entity shall be merged with that of the acquirer entity, and identity of the reserves shall be preserved. ➤ Any difference, whether positive or negative, shall be adjusted against the capital reserves. Hence, no goodwill can be recorded in books under common control transactions under Ind AS 103. It should be shown as Negative Capital Reserve.” [[[ 14. It is also observed by us that the assessee has duly disclosed the working of goodwill and followed the Ind-AS therefore, it cannot be questioned that ITA No.1139/Del/2022 Page | 30 when the deprecation was not claimed in the books of accounts, the same could not be allowed in the computation of income. Once the said amount of purchase consideration is held as goodwill, the assessee is entitled for depreciation on the same. The Ld. Pr. CIT, in the show-cause notice observed that the said asset is shown under the ‘intangible asset under development’, thus not put to use and therefore, claim of depreciation is not proper. Since it is an intangible asset, it is not understandable how it could be put to use. The assessee has already explained that inadvertently the head was titled as ‘intangible asset under development’ as against ‘intangible assets’ and therefore, the depreciation claimed on such intangible asset is in accordance with law. 15. The Hon’ble Supreme Court in the case of Snifs Securities Ltd. (supra) has made following observations: Question No.[b]: \"Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act, 1961, and whether depreciation on 'goodwill' is allowable under the said Section?\" Answer: In the present case, the assessee had claimed deduction of Rs. 54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: \"In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company.\" 2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. ITA No.1139/Del/2022 Page | 31 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: \"Explanation 3.-- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.\" 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee- Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. 7. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. ITA No.1139/Del/2022 Page | 32 16. It can be seen that the hon’ble Supreme court has settled two issues identical to the present case which are: (i) The amount paid in excess of liabilities over assets constitute “goodwill” of the business purchased by which the market worth of the assessee company stood increased; and (ii) The goodwill is an asset and depreciation on goodwill is an allowable expenditure. 17. The Hon’ble Delhi High Court in the case of Areva T & D India Ltd. reported in 345 ITR 41 has also held that “the goodwill is an asset on which depreciation is allowable”. Such order of the Hon’ble Delhi High Court was affirmed by the Hon’ble Supreme Court by dismissing the appeal of the Revenue in SLP (C) No.2127/2012 vide order dated 23.09.2013. 18. Thus, the claim of depreciation is fully supported by the Hon’ble Supreme Court, therefore, by no stretch of imagination the assessment order can be considered as \"prejudicial to the interest of the revenue\". The Supreme Court in the case of Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, reported in (2000) 243 ITR 83 (SC), held that the phrase ‘prejudicial to the interest of Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue ITA No.1139/Del/2022 Page | 33 unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. This legal principle is also laid down by the Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. 295 ITR 282. 19. Recently, the Hon'ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. reported in 2023 (4) TMI 295 - SC, while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of two-fold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant observations are as under:- \"27. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd, (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***\" 20. In view of these facts, in our considered opinion the claim of depreciation on goodwill is an allowable expenditure and therefore even if no enquiry was made by AO on this account, the assessment order cannot be held as prejudicial to the interest of revenue as there was no loss of revenue in allowing the claim of depreciation. The judgements relied upon by the Ld.CIT DR are on the issue where no enquiry was made by AO, however, since we have hold that assessment is not pre-judicial to the interest of revenue, these are not applicable in such circumstances. Accordingly the assessment may be ITA No.1139/Del/2022 Page | 34 erroneous, but it is not prejudicial to the interest of revenue and therefore the provisions of section 263 of the Act cannot be invoked. Accordingly, we quashed the order of Ld. Pr.CIT passed u/s 263, disallowing the deprecation claimed on Goodwill. Thus, the grounds of appeal raised by the assessee are allowed. 21. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 29.04.2025. Sd/- Sd/- (MAHAVIR SINGH) VICE PRESIDENT *Amit Kumar, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT (MANISH AGARWAL) ACCOUNTANT MEMBER ASSISTANT REGISTRAR ITAT, NEW DELHI "