Smt. Malini Subramanian, Mysore V. Pr. CIT, Mysore

ITA 935/BANG/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9465 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHREEHARI KUTSA
• Keywords: Depreciation
• Section: 43B; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NO.935/BANG/2016 ASSESSMENT YEAR : 2011-12 SMT. MALINI SUBRAMANIAN, 965, MAHALAKSHMI, JLB ROAD, MYSURU-570 004. PAN AXMPS 5082 K VS. THE PRINCIPAL COMMISSIONER OF INCOME- TAX, MYSURU. APPELLANT RESPONDENT APPELLANT BY : SHRI SHREEHARI KUTSA, C.A RESPONDENT BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 26.09.2019 DATE OF PRONOUNCEMENT : 27.09.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING TH E REVISION ORDER DATED 24.03.2016 PASSED BY LD PR. CI T, MYSURU U/S 263 OF THE ACT FOR ASSESSMENT YEAR 2011-12. THE AS SESSEE IS AGGRIEVED BY THE REVISION ORDER PASSED IN RESPECT O F EXPENDITURE CLAIMED AS GOOD WILL. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD . THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE YEA R UNDER ITA NO.935/BANG/2016 PAGE 2 OF 7 CONSIDERATION WAS COMPLETED BY THE ASSESSING OFFICE R U/S 143(3) OF THE ACT ON 28-03-2014. THE LD PR. CIT, UPON EXAMIN ATION OF RECORD, TOOK THE VIEW THAT THE ASSESSMENT ORDER PAS SED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. ACCORDINGLY, HE REVISED THE ASSESSMENT ORDER ON THE FOLLOWING IS SUES:- (A) CLAIM FOR DEDUCTION OF EXPENDITURE CLAIMED AS GOOD WILL. (B) DISALLOWANCE U/S 43B OF THE ACT IN RESPECT OF U NPAID DUTIES AND TAXES. (C) INTEREST INCOME ACCRUED ON DEPOSITS. THE ASSESSEE IS AGGRIEVED BY THE REVISION ORDER PAS SED IN RESPECT OF CLAIM OF GOOD WILL AMOUNT. 3. THE LD A.R SUBMITTED THAT THE ASSESSEE IS A DEALER IN TUPPERWARE PRODUCTS IN PART OF MYSORE AREA. THE AS SESSEE WAS ALLOTTED ONE MORE AREA BY CARVING OUT FROM THE AREA OF SOME ANOTHER DISTRIBUTOR. ACCORDINGLY A TRIPARTITE AGREEMENT WA S ENTERED BETWEEN THE ASSESSEE, THE PRINCIPAL AND OUTGOING DISTRIBUTO R. AS PER THE SAID AGREEMENT, THE ASSESSEE WAS LIABLE TO PAY A SU M OF RS.14,01,107/- AS GOOD WILL TO THE OUTGOING DISTR IBUTOR, WHICH SHALL BE PAID OVER A PERIOD OF THREE YEARS AS A % O F THE SALES OF EVERY MONTH. ACCORDINGLY THE ASSESSEE PAID A SUM OF RS.1 ,41,107/- TO THE OUTGOING DISTRIBUTOR DURING THE YEAR UNDER CONS IDERATION AND CLAIMED THE SAME AS DEDUCTION. THE LD A.R SUBMITTE D THAT THE ASSESSEE HAS ONLY EXPANDED THE EXISTING BUSINESS AN D NO GOOD WILL WAS, IN FACT, ACQUIRED. HE SUBMITTED THAT TH E COMPENSATION PAYABLE TO THE OUTGOING DISTRIBUTOR WAS REFERRED UN DER THE NOMENCLATURE GOOD WILL AND THE SAME IS PAID IN TH E COURSE OF CARRYING ON THE EXISTING BUSINESS OF THE ASSESSEE. ACCORDINGLY HE ITA NO.935/BANG/2016 PAGE 3 OF 7 SUBMITTED THAT THE ABOVE SAID CLAIM IS ALLOWABLE. H E FURTHER SUBMITTED THAT, IF THE VIEW OF THE LD CIT(A) IS UPH ELD FOR A MOMENT, THEN THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION ON THE GROSS AMOUNT OF GOOD WILL OF RS.14.01 LAKHS, IN WHICH CAS E, THE TOTAL INCOME COMPUTED BY THE AO WOULD GO DOWN, SINCE THE AMOUNT OF ADMISSIBLE DEPRECIATION WOULD BE MORE THAN THE CLAI M OF RS.1,41,107/-. ACCORDINGLY HE SUBMITTED THAT, IN V IEW OF THE ABOVE SAID ASPECT, THE ASSESSMENT ORDER CANNOT BE CONSIDE RED AS PREJUDICIAL TO THE INTERESTS OF REVENUE. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE AO DID NOT EXAMINE THIS ISSUE AT ALL DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND HENCE THE SAME CONSTITUTE MISTAKE A PPARENT FROM RECORD. SINCE THE GOOD WILL AMOUNT IS CAPITAL EXPE NDITURE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. THE LD CIT-DR FURTHER SUBMITTED THAT THE LD PR. CIT HAS ONLY DIRECTED THE AO TO EXAMINE THE CLAIM IN ACCORDANCE WITH THE LAW. ACCORDINGLY LD CIT-DR SUBMITTED THAT THE REVISION ORDER PASSED BY LD PR. CIT ON THE ABOVE SAID ISSUE CANNOT BE FOUND FAULT WITH. 5. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. BEFORE GOING INTO THE MERITS OF THE ISSUE, WE WOULD LIKE TO DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER O F LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SECTION 263 OF TH E ACT. THE SCOPE OF REVISION PROCEEDINGS INITIATED UNDER SECTI ON 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN T HE CASE OF ITA NO.935/BANG/2016 PAGE 4 OF 7 MALABAR INDUSTRIAL CO LTD (243 ITR 80). THE RELEVA NT OBSERVATIONS MADE BY HONBLE BOMBAY HIGH COURT ARE EXTRACTED BEL OW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS T HE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSE SSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSME NT AND DIRECTING A FRESH ASSESSMENT. THE KEY WORDS THA T ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECES SARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2 000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SEC TION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCOR RECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONE OUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATU RAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINE D TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEADNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS O RDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF RE VENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFIC ER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS A RE ITA NO.935/BANG/2016 PAGE 5 OF 7 POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CA NNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR INDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BE EN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT O F THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 I TR 282. 6. THE HONBLE SUPREME COURT HAS HELD THAT THE EXISTENCE OF TWIN CONDITIONS, VIZ., THE ASSESSMENT ORDER SHOU LD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTER ESTS OF REVENUE, SHOULD BE SHOWN IN THE REVISION ORDER PASS ED U/S 263 OF THE ACT. THE HONBLE APEX COURT HAS FURTHER HELD THAT NON-APPLICATION OF MIND ON THE PART OF THE INCOME-T AX OFFICER WOULD MAKE THE ASSESSMENT ORDER ERRONEOUS. IN THE INSTANT CASE, WE NOTICE THAT THE ASSESSING OFFICER DID NOT CONDUCT ANY ENQUIRY AT ALL WITH REGARD TO THE CLAIM OF GOOD WI LL MADE BY THE ASSESSEE. THE LD A.R ALSO COULD NOT DEMONSTRA TE THAT THE AO DID CONDUCT ENQUIRY AND HAS TAKEN A POSSIBLE VIE W. 7. HENCE, WE ARE OF THE VIEW THAT THE AO HAS PA SSED THE ORDER WITHOUT MAKING ANY ENQUIRY ON THIS ISSUE AND THE SAME WOULD RENDER THE ORDER ERRONEOUS AND IN VIEW OF ITS TAX IMPLICATIONS, THE SAME WOULD CAUSE PREJUDICE TO THE INTERESTS OF REVENUE. WITH REGARD TO THE CONTENTION OF THE A SSESSEE THAT THE ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE PRE JUDICIAL TO THE INTERESTS OF REVENUE ON ACCOUNT OF THE ELIGIBIL ITY OF THE ITA NO.935/BANG/2016 PAGE 6 OF 7 ASSESSEE TO CLAIM DEPRECIATION ON THE GOOD WILL AMO UNT, WE ARE OF THE VIEW THAT THE SAID CLAIM DOES NOT ARISE OUT OF THE ASSESSMENT ORDER AND HENCE THE SAME CANNOT BE CONSI DERED. 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE REVISION ORDER PA SSED BY LD PR. CIT. ACCORDINGLY WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2019. SD/ - (N.V VASUDEVAN) VICE PRESIDENT SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 27 TH SEPTEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NO.935/BANG/2016 PAGE 7 OF 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..