Beacon Higher Education Services Pvt Ltd, New Delhi V. ACIT Circle-4(2), New Delhi

MA 389/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 4440 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 2 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-12-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANDEEP K. MISHRA
• Keywords: Capital asset; Depreciation; Assessment record; Revenue expenditure
• Section: 154; 143(3); 208; 254(2); 73; 72; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. Saktijit Dey, Vice President Dr. B. R. R. Kumar, Accountant Member MA No. 389/Del/2023 (in ITA No. 2335/Del/2019 : Asstt. Year: 2012-13) Beacon Higher Education Services Pvt. Ltd., S-40, 2 nd Floor, Vasant Square Mall, Plot-A, Sector-B, Vasant Kunj, New Delhi-110070 Vs ACIT, Circle-4(2), New Delhi-110002 (APPELLANTT (RESPONDENT) PAN No. AAECB1283F Assessee by : Sh. Ajay Vohra, Sr. Adv. & Sh. Deepesh Jain, Adv. Revenue by : Sh. Sandeep K. Mishra, Sr. DR Date of Hearing: 13.10.2023 Date of Pronouncement: 01.01.2024 ORDER Per Dr. B. R. R. Kumar, Accountant Member: This Miscellaneous Application is arising out of the order dated 17.07.2023 in ITA No. 2335/Del/2019. 2. For the sake of ready reference, the said order of the Tribunal is reproduced as under: DELHI BENCH ‘A’, NEW DELHI Before Sh. Saktijit Dey, Vice President Dr. B. R. R. Kumar, Accountant Member ITA No. 2335/Del/2019 : Asstt. Year: 2012-13 ACIT, Circle-4(2), New Delhi-110002 Vs. M/s Beacon Higher Education Services Pvt. Ltd., S-40, 2 nd Floor, Vasant Square Mall, Plot-A, Sector-B, Pocket-V, Vasant Kunj, New Delhi- 110070 (APPELLANT) (RESPONDENT) MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 2 PAN No. AAECB1283F Assessee by : Sh. Ajay Vohra, Sr. Adv. Sh. Deepesh Jain, Adv. Revenue by : Sh. P. Praveen Sidharth, CIT DR Date of Hearing: 18.04.2023 Date of Pronouncement: 17.07.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the Revenue against the order of ld. CIT(A)-2, New Delhi dated 21.12.2018. 2. Following grounds have been raised by the Revenue: “1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) is legally justified in deleting the addition of Rs.2,15,00,000/- made on account of depreciation claimed on non-compete Fee by holding that non-compete fee cannot be claimed as revenue expenditure in P&L account but depreciation can be claimed being capital asset.” 3. In this case assessee company has filed income tax return declaring loss of Rs.12,39,10,240/- on 29.09.2012. The case was selected for scrutiny and assessment was completed u/s 143(3) of the IT Act, 1961 on 29.01.2015 at an assessed loss of Rs.2,00,95,210/-. 4. Assessment record revealed that assessee company had entered into service continuation agreement with Shri V Sankaran for Rs.3,60,00,000/- and Non compete Agreement with Shri Mahendran for Rs.5,00,00,000/- in May/June 2011 and had allowed depreciation of Rs.2,15,00,000/- at the rate of 25% on the same. Later on, placing reliance on the judgment of Hon'ble High Court of Delhi in the case of Sharp Business System vs. the Commissioner of Income Tax-III vide ITA 492/2012 & CM APPL 14836/2012 dated 05.11.2012, the AO passed an order u/s 154 disallowing the depreciation allowed earlier. 5. Aggrieved the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) held that non-compete fee is not revenue in nature and cannot be claimed as revenue expenditure. Having said so, the ld. CIT(A) allowed depreciation on the amount of non-compete fee. MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 3 6. Aggrieved, the Revenue filed appeal before us. 7. The ld. DR relied on the judgment of Hon’ble jurisdictional High Court in the case of Sharp Business Systems Vs. CIT 211 Taxmann 576 wherein it was held that the amount paid as non-compete fee do not qualify for depreciation u/s 32(1)(ii) of the Income Tax Act, 1961 nor is the same allowable as revenue expenditure. 8. On the other hand, the ld. AR relied on the following case laws:  CIT Vs. Ingersoll Rand International Ind. Ltd. 227 Taxman 176 (Kar.)  CIT Vs. Areva T&D India Ltd. 434 ITR 604 (Mad. HC)  CIT Vs. Ferromatic Milacron India (P.) Ltd. 99 Taxman 154 (Guj.)  Dodrej Agrovet Ltd. Vs. DCIT 230 Taxman 633 (Bom.)  Pentasoft Technologies Ltd. Vs. DCIT 222 Taxman 209 (Mad.)  PCIT Vs. Piramal Glass Ltd. in ITA No. 556 of 2017 (Bom.)  PCIT Vs. Zydus Wellness Ltd. 247 Taxman 397 (Guj.) 9. Under the facts and circumstances of the instant case and keeping in view, the judgment of Hon’ble Jurisictional High Court in the case of Sharp Business Systems Vs. CIT (supra), wherein the issue has been held in favour of the revenue, the appeal of the Revenue is hereby allowed. 10. In the result, the appeal of the Revenue is allowed. Order Pronounced in the Open Court on 17/07/2023.” 3. The appeal was filed by the revenue and the grounds taken by the revenue pertains to addition of Rs.2,15,00,000/- made on account of depreciation claimed on non-compete Fee which has been duly adjudicated on merits. 4. Aggrieved with the order of the Tribunal, the assessee filed Miscellaneous Application. MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 4 5. The Miscellaneous Application filed by the assessee reads as under: “The impugned order dated 17.07.2023 was passed by the Hon'ble Income- tax Appellate Tribunal, Delhi ('Tribunal') allowing the appeal bearing ITA No. 2335/Del/2019 filed by the department for the assessment year 2012- 13. Copy of the order is attached herewith as Annexure 1. The present application under section 254(2) of the Act is being filed for rectification of glaring/ patent mistakes apparent from record in the aforesaid order passed by this Hon'ble Tribunal, which has bearing on the decision in the appeal, and calls for being rectified for the following reasons: Brief Facts: The applicant, a company incorporated under the Companies Act 1956, is engaged in the business of providing higher educational services and also helps in setting up and management of colleges, universities and executive educational programs alongwith establishing, supporting and providing management consultant services as well as financial assistance services to several higher education institutions. For the relevant year, the applicant filed original return of income on 29.09.2012 declaring total loss of Rs.2,39,10,240 under normal provisions of the Act. The said return was selected for scrutiny assessment which culminated into passing of order dated 29.01.2015 under section 143(3) of the Act at an assessed loss of Rs.2,00,95,210 after making certain additions/ disallowances. Subsequently, the assessing officer suo-motu passed rectification order dated 12.04.2017 under section 154/143(3) of the Act whereby it was held that the depreciation of Rs.2, 15,00,000 claimed by the applicant on capitalization of non-compete fee as intangible asset is not allowable under the provisions of the Act. For making the said disallowance, the assessing officer relied on the decision of the Delhi High Court in the case of Sharp Business System v. CIT: [2012] 211 Taxman 576/254 CTR 233 MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 5 dated 5.11.2012. Consequently, the income of the applicant was determined at Rs.14,04,800. Against the aforesaid rectification order dated 12.4.2017, the assessee filed first appeal before the CIT(A) whereby the assessee challenged the rectification order inter alia on the grounds that - (i) the action of the assessing officer in invoking provisions of section 154 of the Act was beyond jurisdiction (refer grounds of appeal nos. 1 to 4 before CIT(A)] and (ii) the disallowance of depreciation is not sustainable [refer ground of appeal no. 5 before CIT(A)]. The aforesaid first appeal filed by the assessee was disposed off by the CIT(A) vide impugned order dated 21.12.2018 whereby the CIT(A), on merits of the matter, held that there was no need for disallowance of depreciation on non-compete fee and appeal was accordingly allowed [refer para 6.2-6.3 of the impugned order]. It would be pertinent to note that the jurisdictional grounds relating to validity of rectification raised by the assessee were not specifically adjudicated by the CIT(A) in the impugned order despite there being specific grounds and submissions made in that regard. The Revenue had filed the captioned appeal against the aforesaid order dated 21.12.2018 passed by the CIT(A) in ITA No.2335/Del/2019. Subsequently, on change in incumbent in the office of CIT(A), the aforesaid order dated 21.12.2018 was suo-motu rectified by the CIT(A) under section 154 of the Act vide order dated 24.09.2020 holding that that depreciation was not allowable in view of the decision of the jurisdictional High Court in the case of Sharp Business System (supra). Against the aforesaid rectification order passed by CIT (A), the assessee filed appeal before this Hon'ble Tribunal in ITA No. 1915/Del/2020. The said appeal has been allowed by this Hon'ble Tribunal vide order dated 17.7.2023 holding that the rectification order passed by CTT(A) is not valid in absence of mandatory DIN being quoted on the said order. As regards captioned appeal in ITA No. 2335/Del/2019, this Hon'ble Tribunal, taking note of the contrary judgements on the issue, allowed the MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 6 Revenue's appeal vide the impugned order holding that the issue of allowability of depreciation on non-compete fee is decided in favour of the Revenue by the judgement of the Delhi High Court in the case Sharp Business System v. CIT: (2812) 211 Taxman 576/254 CTR 233. Re: Non consideration of vital aspects/ submissions and case laws- mistake apparent from record: The aforesaid order passed by this Hon'ble Tribunal, it is with utmost respect submitted, suffers from glaring/ apparent mistakes from record inasmuch as the fundamental jurisdictional issue of validity of rectification order passed by the assessing officer under section 154/143(3) of the Act raised by the assessee applicant has not been considered/ adjudicated upon by this Hon'ble Tribunal as explained hereunder: During the course of hearing on 18.04.2022, the counsels appearing on behalf of the assessee, duly filed-(1) consolidated written synopsis titled as 'SYNOPSIS' for ITA No.2335/Del/2019 and ITA No. 1915/Del/2020 running into 9 pages; and (ii) case law paper book titled as "INDEX OF CASE LAWS which contains proposition wise case laws running to 122 pages. Copy of the synopsis and index of case law paper book (only) is attached herewith as Annexure 2 and Annexure 3 respectively. In the aforesaid written synopsis as supported by the case law paper book and also the oral arguments advanced during the course of hearing, in respect of Revenue's appeal (ITA No. 2135 Del 2019), the counsels duly contested that the invocation of jurisdiction under section 154 of the Act by the assessing officer to disallow depreciation on non-compete fee is beyond Jurisdiction, illegal and bad in law. To support the aforesaid proposition, the counsels of the assessee duly argued that:  The jurisdiction under section 154 of the Act can be exercised only in respect of a "mistake apparent from record"; the expression "mistake apparent from record" has been the subject of interpretation in a plethora of decisions and the Courts have consistently held that section 154 of the Act may be resorted only MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 7 when a glaring mistake of fact or law is committed by the authority passing the order, which is apparent from record, on which there cannot conceivably be two opinions [Refer: T.S Balaram, ITO v. Volkart Brothers 82 ITR 50 (SC); CIT v. Hero Cycles P. Ltd. 228 ITR 463 (SC)]-refer page 3-4 of synopsis.  The issue of allowability of non-compete fee and/ or depreciation thereon is a debatable matter in as much as there exists a cleavage/ divergence in view taken by various Courts including High Courts across the country. Most of the High Courts across the country have held depreciation on non-compete fee to be allowable. [CIT vs Ingersoll Rand International Ind. Ltd.: [2014] 227 Taxman 176 (Karnataka) (Mag). CIT v. Areva T&D India Ltd.: 434 ITR 604 (Mad HC), Triune Energy Services Private Ltd. vs. DCIT: [2016] 237 Τaxman 230 (Del. HC)]- refer pages 4-5 of synopsis. In fact, in the case of Triune Energy Services Private Ltd. vs. DCIT: [2016] 237 Taxman 230, the jurisdictional Delhi High Court allowed depreciation of non-compete fee which was part of goodwill payment made. Further, in the following cases, the jurisdictional Delhi High Court have, in fact, allowed the non-compete fee as revenue expenditure: - CIT v. Career Launcher India Ltd.: 358 ITR 179 (Del.) - CIT v. Eicher Ltd.: 302 ITR 249 (Del.) The aforesaid divergence of view is in fact noted by this Hon'ble Bench in the impugned order as well. Further, the list of judgments referred to by the assessee in the written synopsis to the effect that various courts have allowed depreciation on non-compete fee is listed in pars 8 of the impugned order in the sequence as referred to in the synopsis itself. MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 8 Copy of divergent decisions of various Courts were also placed at pages 23 to 72 of the case law compilation.  Where there exist divergent views of Courts on a particular issue, the view taken by the income tax authorities cannot be considered as 'mistake apparent from record' to be amenable to rectification in terms of section 154 of the Act (refer pages 5-7 of synopsis).The assessee, inter alia, relied on the following decisions to support the said proposition: - CIT vs Rajesh Talkies: 220 TTR 107 (P&H) - Jiyajeerao Cotton Mills v. ITO 130 ITR 710 (Cal.) - V.R. Sonti 117 ITR 838 (Cal) - Orient Paper Industries Ltd. 208 TTR 158 (Cal) - T.N. Viswanatha Reddy 190 ITR 266 (AP) - Sagar Cooperative: 186 ITR 292 (MP) - Setty Pharmaceuticals & Biological Sciences: 14 TTD 275 (Hyd.) Copies of certain case laws were in facts placed at pages 1 to 22 of the case law compilation.  Admission of substantial question of law by High Court/ grant of leave by Supreme Court proves that the issue is debatable [refer CIT v. Reliance Petroproducts Private Limited: 322 TTR 158 (SC), Basti Sugar v. CIT: ITA 232/2005 (Del.), Liquid Investment: ITA 240 of 2009 (Del.), CIT v. Control and Switchgear Contractors Lid.: 377 ITR 215 (Del.), CIT & Another v. Ankita Electronics Pvt. Ltd.: 379 [TR 50 (Kar.)]- refer page 8 of synopsis. Copies of some cases are appended at pages 73 to 80 of the case law compilation.  The assessee sought to support the order passed by CIT(A) under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 ['ITAT Rules'] on the ground that jurisdiction assumed by the assessing officer under section 154 of the Act was invalid, bad in law and void ab initio- paras 7 and 10 @ page 2 of synopsis. It is respectfully submitted that the aforesaid contentions / arguments/ propositions had, it appears, skipped your Honours' attention while passing MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 9 the impugned order inasmuch as the same has not been considered by the Hon'ble Bench in the order dated 17.07.2023. It is humbly submitted that Don-consideration of the aforesaid submissions including written synopsis and oral arguments and also various decisions relied upon in support thereof by the assessee, is clearly a mistake apparent from record falling within the scope of section 254(2) of the Act. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Honda Siel Power Products Limited: 295 ITR 466 (SC). Specific reference is also made to the decision of the Special Bench of the Tribunal in the case of Rahulkumar Bajaj vs ITO: 69 ITD 1 (Nag ITAT) (SB) wherein it was held that non-consideration of the written synopsis which was filed during the course of hearing constitutes mistake apparent from record amenable to rectification under section 254(2) of the Act. The Hon'ble Tribunal observed as under: “18................... Once the jurisdictional issue was decided in favour of the assessee, there was no requirement/necessity to decide the other issues. Even otherwise, the Tribunal had proceeded to decide the alternate issue without referring to the written submissions of the assessee dated 7-5-1997. Had these been considered, perhaps the order of Tribunal would have been different. Therefore, latter part of the order of Tribunal suffers from patent mistake which has resulted in miscarriage of justice to the assessee on account of the adverse remarks damaging the reputation of the assessee who is one of the outstanding and reputed Industrialists of the Country. Such mistake therefore, needs to be rectified in view of the Supreme Court judgment in the case of S. Nagaraj (supra)." (Emphasis supplied] In view of the above, it is respectfully prayed that the order dated 17.07.2023 may kindly be recalled for the purpose of deciding the contentions, not adjudicated in the order.” 6. The issue raised in the Miscellaneous Application revolves around “Non-consideration of vital aspects submissions and case laws – mistake apparent from record.” MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 10 7. The provisions of Section 254(2) of the Income Tax Act reads as under: “254... (2) The Appellate Tribunal may, at any time within [six months from the end of the month in which the order was passed], with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the [Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.” 8. We further find that the Hon’ble Apex Court in the case of CIT Vs. Reliance Telecom Ltd. (2021) 133 taxmann.com 41 has held that “while considering the application under section 254(2), the Tribunal is not required to visit its earlier order and to go into details on merits and if the assessee was of the opinion that the order passed by the Tribunal was erroneous, either on facts or on law, then in that case the only remedy available to the assessee was to prefer appeal before High Court.” 9. Keeping in view, the entire facts on record, we hold that the grounds taken up by the assessee in the miscellaneous application do not fall under the provisions of Section 254(2) of the I.T Act, 1961. MA No. 389/Del/2023 Beacon Higher Education Services Pvt. Ltd. 11 10. In the result, the MA of the assessee is dismissed. Order Pronounced in the Open Court on 01/01/2024. Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Vice President Accountant Member Dated: 01/01/2024 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR