OLYMPIC DECOR LLP,AHMEDABAD V. THE PR.CIT, AHMEDABAD-3, AHMEDABAD

ITA 423/AHD/2024

AI Insights

The case involves Olympic D\u00e9cor LLP, which appealed against the order of the Principal Commissioner of Income Tax-3, Ahmedabad, under section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order for A.Y. 2018-19, directing a de novo assessment, claiming it was erroneous and prejudicial to the interest of the Revenue. The Tribunal examined several issues including the allowance of depreciation on goodwill, deduction under section 80IA, and the treatment of a loan from Crown Laminates Pvt. Ltd. The Tribunal found that the PCIT's assumptions were based on incorrect factual premises and that the issues had been previously settled in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360989 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: JMC Projects (India) Ltd. v. PCIT, Radhe Developers (India) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: TUSHAR HEMANI; PARIMALSINH B. PARMAR; ARS
• Keywords: Set aside; Business income; Difference of opinion; Corroborative evidences; Unexplained cash credit; Depreciation; Valuation report; Assessment record; Unabsorbed depreciation; Scheme of amalgamation
• Section: 143(3); 142(1); 263; 68; 28

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘D’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD ] ] BEFORE S/SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.423/Ahd/2024 Asstt.Year : 2018-19 Olympic Décor LLP 6, Patel Avenue, Nr.Gurudwara SG Highway, Bodakdev Ahmedabad. PAN : ADAFS 2113 H Vs Pr.Commissioner of Income Tax-3 Ambawadi Ahmedabad. (Applicant) (Responent) Assessee by : Shri Tushar Hemani, Sr.Advocate & Parimalsinh B. Parmar, ARs Revenue by : Shri Rignesh Das, CIT-DR सुनवाई क तारीख/Date of Hearing : 28/04/2025 घोषणा क तारीख /Date of Pronouncement: 23/05/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal is preferred by the assessee against the order passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Principal Commissioner of Income Tax-3, Ahmedabad [hereinafter referred to as “PCIT”] dated 22.02.2024 for the Assessment Year 2018–19, wherein the learned PCIT set aside the assessment order passed under section 143(3) of the Act dated 30.04.2021 by the Assessing Officer and directed de novo assessment, holding the said order to be erroneous in so far as it is prejudicial to the interest of the Revenue. ITA No.423/Ahd/2024 2 Facts of the Case 2. The assessee, M/s. Olympic Décor LLP (formerly Sara Suppliers LLP), filed its return of income for A.Y. 2018–19, which was selected for scrutiny. The assessment was completed under section 143(3) vide order dated 30.04.2021 by the ITO, Ward 3(1)(1), Ahmedabad. During the course of assessment, the Assessing Officer examined the financials and submissions furnished by the assessee and accepted the returned income after making inquiries on certain issues. 3. Subsequently, the PCIT exercised jurisdiction under section 263 of the Act on the basis that the assessment order passed by the AO was erroneous in so far as it is prejudicial to the interest of Revenue on multiple grounds. Show cause notice under section 263 was issued, pointing out various issues, including: i. Allowance of depreciation on goodwill allegedly created upon amalgamation of a subsidiary, ii. Allowance of deduction under section 80IA, iii. Non-taxation of alleged unexplained credit of Rs. 10.80 crore under section 68 r.w.s. 115BBE in respect of loan from Crown Laminates Pvt. Ltd., iv. Carry forward and set-off of unabsorbed depreciation on such goodwill and Acceptance of set-off of losses of Rs.11,18,52,160/- without proper verification, 4. After going through the detailed reply of the assessee, in the detailed revisionary order dated 22.02.2024, the PCIT recorded that the AO had failed to examine the claim of depreciation on goodwill under section 32(1)(ii), though it had been disallowed in earlier years (A.Y. 2016–17) and was claimed again in the year under consideration despite the matter being sub judice. The PCIT also recorded that the ITA No.423/Ahd/2024 3 AO had allowed set-off of unabsorbed depreciation without verifying the availability of carry forward and its allowability under section 32(2). The PCIT further recorded that the claim under section 80IA was allowed without reconciling the difference between depreciation claimed under books and income-tax and without verification. The PCIT concluded that the AO failed to apply the provisions of section 68 in respect of loan transaction of Rs. 10.80 crore with Crown Laminates Pvt. Ltd., which was treated as business income under section 28 instead of unexplained cash credit under section 68 r.w.s. 115BBE and no inquiry was made regarding the availability and allowability of loss set-off of Rs.11.18 crore. 5. Holding that the assessment order was passed without conducting proper inquiries and verification as warranted, and thereby resulting in loss of revenue, the learned PCIT invoked Explanation 2 to section 263 and set aside the assessment order with a direction to the AO to conduct de novo proceedings on the above issues. 6. Aggrieved by the order passed by the PCIT, the assessee has raised the following grounds before us: 1. The Ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 2. The Ld. PCIT has grossly erred in not appreciating that in order to invoke s.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263 of the Act ITA No.423/Ahd/2024 4 is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed. 3. The subject order us. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when depreciation on goodwill on amalgamation has been rightly claimed under the provisions of the Act. 4. The subject order u/s. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when unabsorbed depreciation on goodwill on amalgamation has rightly been carried forward and set off in accordance with the provisions of Section 32(2) of the Act. 5. The subject order u/s. 263 passed by the Ld. PCIT is based on the wrong assumption that the case of the appellant for AY 2016-17 with respect to depreciation on goodwill on amalgamation is sub- judice. The Hon'ble ITAT has pronounced its judgement for AY 2016- 17 in favour of the appellant before passing of the subject order u/s. 263. The Hon'ble ITAT has allowed the depreciation on goodwill on amalgamation for AY 2016-17 rendering the revisionary proceedings bad in law. 6. The subject order u/s. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when the deduction has rightly been claimed u/s. 80IA of the Act. 7. The subject order u/s. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when there is no receipt of loan during the year from M/s. Crown Laminates Pvt. Ltd. liable to be taxed u/s. 68 r.w.s. 115BBE of the Act. 8. The Ld. PCIT has further erred in law and on facts in not appreciating that the view taken by the AO during the assessment proceedings is a possible view and hence the revisionary proceedings are illegal and bad in law. 9. The Id. PCIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of Id. PCIT is without jurisdiction and illegal and hence deserves to be deleted. ITA No.423/Ahd/2024 5 10. Ld. PCIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective. 11. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of hearing of the appeal. 7. The learned AR, reiterating the grounds of appeal, submitted that the assumption of jurisdiction under section 263 of the Act by the Ld. PCIT is not justified and devoid of merit. It was submitted that the assessment was completed under section 143(3) r.w.s. 144B vide a reasoned order dated 30.04.2021, after issuance of multiple notices under sections 142(1) and 143(2), and after detailed verification of all material facts and supporting evidence. Therefore, it cannot be alleged that the assessment was completed without inquiry or that the AO accepted claims mechanically without application of mind. 8. In relation to Grounds relating to depreciation on goodwill, the learned AR submitted that the primary reason for invocation of section 263 was the alleged erroneous allowance of depreciation on goodwill arising out of amalgamation. He submitted that the issue was not only duly examined by the AO in earlier years but also adjudicated by the Coordinate Bench in the assessee’s own case for A.Y. 2016–17 (in the case of Sara Suppliers Pvt. Ltd., ITA No. 432/Ahd/2022, order dated 21.02.2024), wherein the claim of depreciation on goodwill was upheld after thorough analysis of the amalgamation scheme, valuation report, and relevant provisions of section 32(1)(ii). It was therefore submitted that once the depreciation on goodwill was allowed in earlier years and has attained finality by way of a binding decision of the Co-ordinate Bench, the opening WDV in the subsequent year has to be accepted, and depreciation thereon has to ITA No.423/Ahd/2024 6 be mandatorily allowed as per settled law. Consequently, the order of the AO allowing such depreciation cannot be regarded as erroneous. 9. In respect of Ground No. 6, pertaining to the deduction under section 80IA, the learned AR submitted that the AO had duly examined the claim during the assessment proceedings. The assessee had filed Form 10CCB, profit and loss account of the eligible unit, and reconciliation of depreciation under the Companies Act and the Income Tax Act. The difference between book depreciation and tax depreciation had been explained and matched, and the AO was satisfied with the same. There was no finding by the PCIT to demonstrate how the claim was factually incorrect or resulted in excess deduction. In the absence of any such finding, the assessment order cannot be deemed erroneous or prejudicial, and hence, invocation of section 263 on this count is without jurisdiction. 10. As regards the set-off of brought forward depreciation, the learned AR submitted that the amount pertained to depreciation already allowed in earlier years and brought forward as per the provisions of section 32(2). He argued that the AO had verified the claim based on depreciation schedules and tax audit reports, and that the Ld. PCIT’s observation that the set-off was incorrectly allowed is factually untenable and legally unsustainable. He pointed out that the Ld. PCIT was factually incorrect in stating that the issue for A.Y. 2016–17 was subjudice, since the order of the ITAT allowing depreciation on goodwill had already been pronounced on 21.02.2024, prior to the passing of the impugned order under section 263 on 22.02.2024. Thus, the entire foundation for revision in respect of depreciation on goodwill and its carry forward collapses. ITA No.423/Ahd/2024 7 11. Regarding Ground No. 7, on the alleged non-application of section 68 to the transaction with Crown Laminates Pvt. Ltd., the learned AR submitted that no new loan was received by the assessee during the relevant previous year. The amount in question was repayment of earlier advances made by the assessee and routed through banking channels. The AO, after considering the facts, made a substantive addition of Rs.10.80 crore under section 28, treating the repayment as a business receipt lacking explanation. The learned AR relied on the judgment of the Hon’ble Gujarat High Court in JMC Projects (India) Ltd. v. PCIT (67 taxmann.com 258), to argue that when the AO has already made a larger addition under one provision, the Commissioner cannot revise the assessment merely on the basis that a different provision ought to have been applied. It was emphasized that such a substitution of opinion does not render the original order erroneous or prejudicial to the interest of the Revenue. In support, the AR placed reliance on the decision of the ITAT Ahmedabad Bench in Radhe Developers (India) Ltd. (ITA No. 1226/Ahd/2018), where it was held that when repayment of a past advance is routed through the banking channel and explained by the assessee, the same cannot be treated as unexplained credit under section 68. The AR argued that in the present case, the assessee had submitted confirmations, bank statements, and details of past transactions to substantiate that the repayment was out of earlier recorded advances, and the AO had accepted the same after inquiry. Thus, there was no error in the assessment. 12. The AR further submitted that the revisionary order does not contain any independent inquiry or conclusive finding by the Ld. PCIT as to how the assessment order is both erroneous and prejudicial. The PCIT merely reproduced certain figures and directed the AO to ITA No.423/Ahd/2024 8 conduct de novo assessment without any finding on incorrect allowance or loss of revenue. The revisionary jurisdiction under section 263, it was submitted, cannot be invoked merely for directing roving inquiries or for improvement of reasoning. It was stressed that where the AO has taken a plausible view after inquiry, the jurisdiction under section 263 is barred. 13. On the other hand, the learned Departmental Representative (DR) placed strong reliance on the impugned order passed by the Ld. PCIT. It was submitted that the Assessing Officer had failed to examine the core issue relating to the allowability of depreciation on goodwill, which was the subject matter of extensive litigation in earlier assessment years. The DR contended that despite the substantial claim of depreciation of Rs.26,86,17,589/- on goodwill the AO did not call for or examine the valuation report, computation of goodwill, or its allowability. 14. We have carefully considered the rival submissions, perused the assessment order, the revisionary order passed by the Ld. PCIT, submissions of both parties, and the judicial precedents relied upon by the assessee and the Revenue. The central question before us is whether the order passed by the Assessing Officer is \"erroneous in so far as it is prejudicial to the interest of the revenue\" so as to justify invocation of section 263 of the Act. The impugned revisionary order revolves around the following four issues: i. Allowance of depreciation on goodwill arising out of amalgamation. ii. Set off of unabsorbed depreciation on goodwill. iii. Deduction under section 80IA; and iv. Non-application of section 68 on the transaction with Crown Laminates Pvt. Ltd. ITA No.423/Ahd/2024 9 15. Before we proceed to address the specific issues raised in the impugned order under section 263, it is relevant to consider the foundational background as recorded by the Ld. PCIT in paragraph 6 (page 4) of the revisionary order. In the said paragraph, the Ld. PCIT has outlined the facts relating to the conversion of Sara Suppliers Pvt. Ltd. into Olympic Décor LLP and the preceding amalgamation of Crown Laminates Pvt. Ltd. (CLPL) into the said entity. The PCIT noted that Sara Suppliers Pvt. Ltd. was converted into Olympic Decor LLP during F.Y. 2016–17 and had earlier amalgamated with CLPL pursuant to a scheme approved by the Hon’ble Gujarat High Court. It is further observed that as per the books of the amalgamated entity, goodwill of Rs.191.08 crores was recognized in A.Y. 2016–17 due to excess of consideration over the net assets acquired, and depreciation of Rs.26.86 crores was claimed thereon in A.Y. 2018–19. The Ld. PCIT observed that in A.Y. 2016–17, the AO had disallowed the depreciation on such goodwill on the ground that it was a self-generated asset and not eligible for depreciation. Based on this history, the Ld. PCIT formed a prima facie view that the goodwill on which depreciation was claimed in A.Y. 2018–19 had no actual cost in the hands of the amalgamating company and hence was not eligible for depreciation under section 32(1)(ii) read with Explanation 7 to section 43(1). It was also mentioned that the matter for A.Y. 2016–17 was pending in appeal, and therefore, the claim made by the assessee in A.Y. 2018– 19 was incorrect, and the AO erred in allowing such depreciation without inquiry. Furthermore, the PCIT linked this background to subsequent claims made by the LLP for set-off of brought forward depreciation and observed that if the base depreciation itself was inadmissible in earlier years, the consequential set-off in A.Y. 2018– 19 also stood vitiated. Accordingly, the Ld. PCIT treated the entire ITA No.423/Ahd/2024 10 chain of events—recognition of goodwill, claim of depreciation, and set-off—as forming an “erroneous and prejudicial” part of the assessment requiring revision under section 263. 16. We have carefully considered this background framing by the Ld. PCIT. However, for reasons discussed hereinafter in the issue-wise adjudication, we are of the view that the foundational presumption in the PCIT’s order that the depreciation on goodwill stood disallowed and that the issue was sub-judice does not hold good in light of the fact that the Hon’ble ITAT had already allowed the depreciation in favour of the assessee for A.Y. 2016–17 in its order dated 21.02.2024, a day prior to the passing of the PCIT’s order on 22.02.2024. Moreover, the goodwill arose from a High Court-sanctioned scheme of amalgamation and was supported by a valuation report, and depreciation was allowed by the AO in A.Ys. 2016–17 and 2017–18 and carried forward accordingly. Hence, while the background narrated by the PCIT provides the contextual basis for initiating proceedings under section 263, the assumption that the goodwill was fictitious and depreciation thereon inadmissible—without considering binding appellate orders and factual documentation—renders the foundation of revisionary jurisdiction unsustainable. 17. We now proceed to examine each issue raised by the PCIT on merits. The first and principal ground on which the Ld. PCIT has assumed jurisdiction under section 263 pertains to the assessee’s claim of depreciation of Rs.26.86 crore on goodwill recorded in its books as part of the intangible block. The Ld. PCIT has, in para 6 of the impugned order, traced the genesis of the goodwill to a scheme of amalgamation sanctioned by the Hon’ble Gujarat High Court, wherein ITA No.423/Ahd/2024 11 Olympic Laminates Pvt. Ltd. was amalgamated with Sara Suppliers Pvt. Ltd., which was subsequently converted into the present assessee, Olympic Décor LLP. It is noted by the PCIT that the goodwill of Rs.191.08 crore was recognized in A.Y. 2016–17 upon amalgamation, and depreciation thereon was claimed thereafter. The PCIT also records that depreciation was disallowed by the AO in A.Y. 2016–17 and alleges that the issue remained unresolved and sub judice. On that basis, it was concluded that the AO erred in allowing depreciation of Rs. 26.86 crore in the year under consideration without inquiry or verification. 18. Once depreciation on goodwill has been allowed in the initial year and the WDV has been determined, depreciation in subsequent years becomes a matter of statutory computation under section 32(1). Depreciation once allowed enters into the block of assets and must be carried forward irrespective of actual use. The WDV having been established, the AO was not required to revisit the allowability of depreciation on the same asset unless the claim for the earlier year had been reversed. It is also well established that where depreciation has been allowed in an earlier year and no material change in facts or law occurs, the Revenue is bound to maintain consistency which means that once a view is taken and accepted in an earlier year, it cannot be arbitrarily re-examined in subsequent years. The PCIT’s contention that the goodwill was self-generated or lacked real consideration was already examined and rejected by the Tribunal in A.Y. 2016–17. The Co-ordinate Bench accepted that the goodwill arose from the excess of consideration over the net value of tangible assets transferred in amalgamation and was therefore a valid intangible asset eligible for depreciation under section 32(1)(ii). The Ld. PCIT could not have reopened the settled position through revision without ITA No.423/Ahd/2024 12 first disturbing the allowance in the earlier year. In our opinion goodwill arising on amalgamation qualifies as an intangible asset eligible for depreciation. The finding of Co-ordinate Bench in A.Y. 2016–17 clearly brings the assessee’s goodwill within the scope of this principle. 19. In light of the foregoing, we are of the opinion that the PCIT’s invocation of section 263 on this issue is based on an incorrect factual premise and a difference of opinion does not satisfy the jurisdictional threshold of an “erroneous” order prejudicial to the interests of the Revenue. 20. The second limb of the PCIT’s order pertains to the set-off of Rs. 11.18 crore of brought forward depreciation, which the PCIT claims to be erroneously allowed as it pertains to goodwill depreciation disallowed in earlier years. This conclusion, however, directly stems from the PCIT’s incorrect assumption in respect of the disallowance of depreciation on goodwill in A.Y. 2016–17. As already discussed, the Coordinate Bench of has allowed the claim of depreciation on goodwill in A.Y. 2016–17, and the said order was available on record before the PCIT. Once the base depreciation is judicially accepted and becomes part of assessed depreciation for that year, the unabsorbed portion thereof lawfully enters the pool of carry forward depreciation eligible for set-off under section 32(2). Once depreciation is allowed and brought forward as per returns and records, its set-off cannot be denied in later years unless the original allowance is proved to be incorrect or is otherwise reversed. There is no finding in the present case that the allowance in earlier year was reversed or disturbed. In fact, it stands judicially confirmed. ITA No.423/Ahd/2024 13 21. In light of the above, we find that the AO’s decision to allow the set-off of brought forward depreciation was entirely in accordance with the law and the facts of the case. No error, much less a prejudicial error, is demonstrated in this regard. 22. The PCIT alleged that the assessee claimed excess deduction under section 80IA of Rs.1,89,435/- and that AO accepted the same without inquiry. However, we find from the assessment records and assessee’s submissions that the AO had verified the 80IA claim based on Form 10CCB, profit and loss statement of the eligible Windmill unit, and depreciation schedules under both Income Tax and Companies Act. The reconciliation was duly filed and accepted. There is no finding by the PCIT that the claim was factually incorrect or that any excess was demonstrable from the computation. There are several judicial precedents where it was held that where the AO has made inquiries and taken a view after considering material placed before him, revision cannot be invoked merely because the PCIT believes that a better or more detailed inquiry should have been made. In absence of any clear finding of incorrect allowance or revenue loss, the assessment cannot be considered erroneous. The AO’s view is plausible and duly supported by documents. 23. The next ground for revision is that the AO made addition of Rs. 10.80 crore under section 28 whereas, according to PCIT, it ought to have been added under section 68. The AO, after calling for details and issuing notices under section 133(6), concluded that the repayment of loan by Crown Laminates was not properly explained, and made addition under section 28 treating it as business receipt. The PCIT has not established how such addition under section 28 was ITA No.423/Ahd/2024 14 erroneous, or how invoking section 68 would have resulted in a higher tax liability. 24. In case of JMC Projects (India) Ltd. v. PCIT [67 taxmann.com 258 (Guj.)], the Hon’ble Gujarat High Court held that when an addition has already been made under one provision, the PCIT / Commissioner cannot revise the order merely because, in his view, a different provision ought to have been invoked. This is a classic case of improvement of reasoning, which is outside the scope of section 263. Further, the ITAT Ahmedabad in Radhe Developers (India) Ltd., ITA No. 1226/Ahd/2018, held that where funds received were repayment of earlier advances through banking channels and supported by confirmations, they could not be taxed under section 68. The facts of the present case are on all fours. Accordingly, we find no merit in this ground of revision either. 25. We find that the AO made detailed inquiries on all issues during the assessment proceedings. The assessee responded to notices under section 142(1) with supporting documents. The PCIT has not demonstrated how the AO's view was legally untenable or factually incorrect. No new evidence or inquiry has been conducted by the PCIT either. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [243 ITR 83 (SC)] has clearly laid down that both conditions of section 263 must be cumulatively satisfied. In the absence of prejudice to Revenue or demonstrable error, the order cannot be revised. 26. In view of the foregoing discussion, we are of the considered view that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The PCIT erred in invoking revisionary ITA No.423/Ahd/2024 15 jurisdiction under section 263. The impugned order is accordingly quashed. 27. In the result, the Appeal of the assessee is allowed. Order pronounced in the Court on 23rd May, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 23/05/2025 "