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Tax Publishers Goldmohar Design and Apparel Park Ltd. v. Pr. CIT [ITA No. 3971/Mum/2017, dt. 31-7-2020] : 2020 TaxPub(DT) 3026 (Mum.-Trib.) Validity of revision powers of Commissioner on erroneous claim of depreciation on alleged intangible asset *Facts:* Assessee was a SPV incorporated to take over and revive sick unit with National Textile Corporation (NTC) as its substantial shareholder. Assessee entered into a long-term lease with NTC for 33 years with two further renewal terms to avail the land and premises for which stamp duty was paid for INR 7.41 crores. The said long term lease could not be registered however due to disputes thus leasehold title of assessee was defective. During the earlier assessment year which was 2011-12 assessee claimed that the said stamp duty paid created an intangible asset under section 32(1)(ii) on which depreciation claim was returned and allowed by assessing officer in a scrutiny assessment under section 143(3). Subsequently the said assessment was re-opened under section 147 alleging income escaping assessment and the depreciation claim stood disallowed. During the assessment year in appeal, i.e., 2012-13 a similar claim of depreciation on stamp duty paid was claimed as depreciation on intangible asset which stood allowed by assessing officer in the assessment. This was revised by the PCIT alleging the depreciation claim to be erroneous as the stamp duty was not an intangible asset and thus the assessment order being prejudicial to the interests of the revenue. Aggrieved assessee went in higher appeal questioning the revision powers invoked under section 263. Held against the assessee that the revision powers were correctly invoked by the PCIT. *Editorial Note:* The arguments of assessee make an interesting reading -- 1. The earlier assessment year invocation of reassessment proceedings precluded the PCIT's powers to invoke section 263 -- ITAT held that the two sections are different and operate in different spheres. Reassessment under section 147 is invoked for income escaping assessment while revision powers of CIT under section 263 is for orders which are erroneous and prejudicial to the interests of the revenue. They are not mutually exclusive and if conditions exist can be invoked accordingly. 2. The assessee claimed that the stamp duty paid created an intangible asset akin to leasehold rights -- the ITAT held that section 32(1)(ii) uses the term 'any other business or commercial rights of similar nature' to cover an extended meaning of intangible assets to enshrine even other those than those enlisted intangible assets in the section; the stamp duty paid is simply a revenue expenditure thus cannot fall into the definition of an intangible asset. 3. The point of depreciation on intangible asset went thru a scrutiny assessment thus the same point with different opinion cannot form basis of action under section 263 -- ITAT held that an erroneous reading by assessing officer of an intangible asset was certainly wrong and prejudicial to the interests of the revenue. 4. While invoking section 263 PCIT needs to give an opportunity to assessee under principles of audi alteram partem -- Held by ITAT in the affirmative. As to why the alternate claim of the stamp duty being a revenue expenditure was not done by the assessee in first year of assessment year 2011-12 itself is not known. A reverse counter by assessee by claiming that what was a revenue expenditure was erroneously claimed as an intangible asset and depreciation thereon as well could have also turned the decision to the assessee's favour as then the invocation of section 263 cannot be prejudicial to interests of the revenue in the first place if it had been thus.

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Goldmohar Design and Apparel Park Ltd. v. Pr. CIT [ITA No. 3971/Mum/2017, dt. 31-7-2020] : 2020 TaxPub(DT) 3026 (Mum.-Trib.)

Validity of revision powers of Commissioner on erroneous claim of depreciation on alleged intangible asset

Facts:

Assessee was a SPV incorporated to take over and revive sick unit with National Textile Corporation (NTC) as its substantial shareholder. Assessee entered into a long-term lease with NTC for 33 years with two further renewal terms to avail the land and premises for which stamp duty was paid for INR 7.41 crores. The said long term lease could not be registered however due to disputes thus leasehold title of assessee was defective. During the earlier assessment year which was 2011-12 assessee claimed that the said stamp duty paid created an intangible asset under section 32(1)(ii) on which depreciation claim was returned and allowed by assessing officer in a scrutiny assessment under section 143(3). Subsequently the said assessment was re-opened under section 147 alleging income escaping assessment and the depreciation claim stood disallowed.

During the assessment year in appeal, i.e., 2012-13 a similar claim of depreciation on stamp duty paid was claimed as depreciation on intangible asset which stood allowed by assessing officer in the assessment. This was revised by the PCIT alleging the depreciation claim to be erroneous as the stamp duty was not an intangible asset and thus the assessment order being prejudicial to the interests of the revenue. Aggrieved assessee went in higher appeal questioning the revision powers invoked under section 263.

Held against the assessee that the revision powers were correctly invoked by the PCIT.

Editorial Note: The arguments of assessee make an interesting reading --

1. The earlier assessment year invocation of reassessment proceedings precluded the PCIT's powers to invoke section 263 -- ITAT held that the two sections are different and operate in different spheres. Reassessment under section 147 is invoked for income escaping assessment while revision powers of CIT under section 263 is for orders which are erroneous and prejudicial to the interests of the revenue. They are not mutually exclusive and if conditions exist can be invoked accordingly.

2. The assessee claimed that the stamp duty paid created an intangible asset akin to leasehold rights -- the ITAT held that section 32(1)(ii) uses the term 'any other business or commercial rights of similar nature' to cover an extended meaning of intangible assets to enshrine even other those than those enlisted intangible assets in the section; the stamp duty paid is simply a revenue expenditure thus cannot fall into the definition of an intangible asset.

3. The point of depreciation on intangible asset went thru a scrutiny assessment thus the same point with different opinion cannot form basis of action under section 263 -- ITAT held that an erroneous reading by assessing officer of an intangible asset was certainly wrong and prejudicial to the interests of the revenue.

4. While invoking section 263 PCIT needs to give an opportunity to assessee under principles of audi alteram partem -- Held by ITAT in the affirmative.

As to why the alternate claim of the stamp duty being a revenue expenditure was not done by the assessee in first year of assessment year 2011-12 itself is not known.

A reverse counter by assessee by claiming that what was a revenue expenditure was erroneously claimed as an intangible asset and depreciation thereon as well could have also turned the decision to the assessee's favour as then the invocation of section 263 cannot be prejudicial to interests of the revenue in the first place if it had been thus.