Case Law Details
Beacon Higher Education Services Pvt Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that issue relating to allowance of depreciation on non-compete fee is debatable and it is well settled law that rectification provision u/s. 154 of the Income Tax Act cannot be invoked if the issue is debatable.
Facts- The assessee, a company, filed its return of income at NIL after setting off of the brought forward losses of Rs. 4,29,60,688/-under normal provisions of the Income-tax Act, 1961 and book profit of Rs. 57,22,914/- u/s 115JB of the Act.
The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Act on 30.10.2018 at an income of Rs. 7,15,68,060/- after setting off the brought forward losses of Rs. 5,24,34,375/-. Thereafter AO noticed that in the assessment order as per the previous year’s order, no further losses of previous years were available for set off during AY 2014-15. The assessee had entered into ‘Service Continuation Agreement’ in May 2011 and ‘non-compete agreement’ in June, 2011 and claimed depreciation of Rs. 1,20,93,750/- @ 25% as ‘non-compete agreement’. Since neither of the two agreements qualified for depreciation as intangible assets, rectification notice u/s 154 of the Act was issued to the assessee for rectifying the mistake. AO after considering the submissions of the assessee rejected the claim and thus made addition of Rs. 1,20,93,150/-.
Conclusion- Held that it is well settled that if the issue is debatable in that event the provisions of section 154 of the Act cannot be invoked. In the case in hand, primary issue related to allowance of depreciation on non-compete fee is pending consideration before the Hon’ble Supreme Court. Further, the Hon’ble Jurisdictional High Court has also admitted the issue whether powers u/s 154 can be exercised when the issue is debatable in the assessee’s own case for earlier assessment year.
FULL TEXT OF THE ORDER OF ITAT DELHI
By way of the present appeal the assessee is challenging the order passed by the learned Commissioner of Income-tax (Appeals)-2, New Delhi dated 24.09.2020 pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:
“1. Under the facts and circumstances of the case, the Ld. CIT (A) has grossly erred on facts of the matter and law under applicable provisions and passed the order u/s 154 by reversing his own order passed in the appeal matter u/s 154, is arbitrary and applied the fact decided in judicial order being against the principles of natural justice and the provisions of IT Act, 1961 to the appellant.
2. The Ld. CIT (A) has grossly erred on facts to extend an opportunity to examine any additional evidence being against the principles of natural justice.
3. The Ld. CIT(A) has grossly erred on fact as well as in law by withdrawing the depreciation amounting to Rs.1,20,93,750/- u/s 32 (1) (ii) of the IT, Act 1961 on intangible asset i.e. non- compete fee, as per definition u/s 2 (f), which allowed by him in the appeal order passed u/s 250 by setting aside the AO’s order u/s 154 disallowing depreciation claimed, and applied the judicial order arbitrary, which accepted by him as not related to the matter of appellant.
4 The Ld. CIT (A) has grossly erred to disallow the brought forward accumulated losses of Rs.5,24,34,375/- by withdrawing the allowed depreciation on the ground that it was not available to assessee.
5 The Ld. CIT (A) has grossly erred by exceeding his authority to pass order u/s 154 by reversing not only his own order but ignored the order passed by his predecessor in the same issue in AY 12-13, setting aside the AO’s order u/s 154 to disallow depreciation of Rs. 1,20,93,750/- claimed u/s 32 (1) (ii) on intangible asset i.e. non-compete fee, as per definition u/s 2 (f), without going into the merit of fact of assessee and a judicial order which was not applicable to the appellant.
6. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings.”
2. Briefly stated facts are that the assessee, a company, filed its return of income at NIL after setting off of the brought forward losses of Rs. 4,29,60,688/-under normal provisions of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) and book profit of Rs. 57,22,914/- u/s 115JB of the Act. The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Act on 30.10.2018 at an income of Rs. 7,15,68,060/- after setting off the brought forward losses of Rs. 5,24,34,375/-. Thereafter the Assessing Officer noticed that in the assessment order as per the previous year’s order, no further losses of previous years were available for set off during AY 2014-15. The assessee had entered into ‘Service Continuation Agreement’ in May 2011 with Shri V. Sankasran and ‘non-compete agreement’ in June, 2011 with Shri A. Mahendran and claimed depreciation of Rs. 1,20,93,750/- @ 25% as ‘non-compete agreement’. Since neither of the two agreements qualified for depreciation as intangible assets, rectification notice u/s 154 of the Act was issued to the assessee for rectifying the mistake. In response to the notice the learned Authorized Representative of the assessee filed the submissions. The Assessing Officer after considering the submissions of the assessee rejected the claim and thus made addition of Rs. 1,20,93,150/-. Aggrieved against this action of the Assessing Authority the assessee filed appeal before the learned CIT(Appeals), who after considering the submissions vide order dated 20.01.2020 allowed the appeal of the assessee and held that the action of the Assessing Officer was not within the scope of Section 154. Thereafter the learned CIT(Appeals) vide impugned order dated 24.09.2020 rectified his order by holding that the order of learned CIT(Appeals) was not in consonance with the judgment of the Hon’ble Delhi High Court in the case of M/s Sharp Business System v. CIT 254 CTR Delhi 233. Aggrieved against this the assessee is in appeal before this Tribunal.
3. Apropos to the grounds of appeal learned counsel for the assessee fairly conceded the fact that the Hon’ble Delhi High Court in the case of M/s Sharp Business System v. CIT (supra) has decided the issue against the assessee and the learned CIT(Appeals) following the judgment of the Hon’ble Delhi High Court has passed the impugned order. Before us learned counsel vehemently argued that decision of Hon’ble Delhi High Court in the case of M/s Sharp Business System v. CIT (supra) is under challenge before the Hon’ble Supreme Court. Learned counsel relied on the ratio of decision laid down by the Hon’ble Madhya Pradesh High Court in the case of Sagar Co-operative Central Bank Ltd. vs. CIT (1990) 186 ITR 292 (MP). He submitted that there are conflicting decisions on the issue of allowability of depreciation on non-compete fee. Learned counsel submitted that the decision of the Hon’ble Delhi High Court is under challenged before the Hon’ble Supreme Court and the issue whether depreciation on non-compete fee is allowable deduction is pending for consideration in the case of Sharp Business System v. CIT (C.A. No. 4072/2014). He submitted that the learned CIT(Appeals) committed gross error in rectifying its order u/s 154 of the Act. In support of his contention learned counsel relied upon the judgment of the Hon’ble Madhya Pradesh High Court in the case of Sagar Co-operative Central Bank Ltd. v. CIT (1990) 186 ITR 292 (MP). He further submitted that on the issue of non-compete fee there are conflicting decisions by various High Courts. Therefore, in the light of judgment of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC), if the statutory provision is capable of more than one view then the view which favours the taxpayer should be preferred. He submitted that the issue in question being debatable should not be subjected to rectification u/s 154 of the Act. Learned counsel pointed out that the assessee in his own case for earlier assessment year 2012-13 had filed appeal before the Hon’ble High Court of Delhi who is pleased to admit the appeal bearing ITA no. 191/24 vide order dated 19.03.2024 on the following question of law:
“Whether a debatable question of law, which calls for a detailed inquiry/investigation/discussion fall within the category of “mistake apparent on the record” as is used in Section 154 of the Act?”
4. Learned counsel further placed reliance on the following case laws:
– T.S. Balaram v. Volkart Brothers [AIR 1971 SC 2204];
– CIT v. Orient Paper Industries Ltd. [(1994) 208 ITR 158 (Cal.)]; – CIT v. Rajesh Talkies [(1966) 133 CTR (P&H) 474];
– Sagar Co-operative Central Bank Ltd. v. CIT [(1990) 186 ItR 292 (MP)];
– V.R. Sonti v. CIT [(1997) 147 ITR 838 (Cal.)];
– CIT v. Delhi Cement Stockists [(1971) 81 ITR 515 (Delhi)];
– Pr. CIT v. Zydus Wellness Limited [(2017) 247 Taxman 397 (Guj.)];
– Sharp Business System v.CIT [ITA 492/2012 – Del.];
– CIT v. Ingersoll Rand International Ind. Ltd. [ITA no. 452/2013- Kar.];
– Triune Energy Services Private Limtied & Ors. V. DCIT [ (2016) 237 Taxman 230 (Delhi)].
5. On the other hand, learned DR opposed the submissions and supported the order of learned CIT(Appeals). He contended that it is well settled position of law that the judgment of the Hon’ble Jurisdictional High Court is binding on all authorities within its territorial jurisdiction. He submitted that if the submissions of learned counsel for the assessee are accepted that will lead to judicial indiscipline and would be in disregard to the judgment of the Hon’ble Jurisdictional High Court. He submitted that learned CIT(A) is justified in rectifying the order as not following the judgment of the Hon’ble Jurisdictional High Court tantamount to mistake apparent from the record. On this learned DR has placed reliance on the decision of Hon’ble Andhra Pradesh High Court rendered in the case of B.V.K. Seshavataram v. CIT [1974] 75 Taxman 491 (Andhra Pradesh). He, therefore, strongly opposed the submissions of the learned counsel for the assessee and relied upon the impugned order.
6. In rejoinder, learned counsel for the assessee submitted that the moot question is, whether, provisions as embodied in section 154 can be invoked if the issue in question is debatable. He submitted that admittedly there are conflicting views by different High Courts on the issue in question. That goes to prove that the issue, whether, depreciation on non-compete fees is allowable, is highly debatable and such a debatable issue cannot be amenable to rectification u/s 154 of the Act. He further submitted that on this point of law appeal filed by the assessee has been admitted. He drew our attention towards the order dated 19.03.2024 (supra).
7. We have heard rival contentions and perused the material available on record. Undisputed facts in the present case are that the learned CIT(Appeals) rectified his order dated 20.01.2020 u/s 154 of the Act on the basis of ratio laid down by the Hon’ble Jurisdictional High Court of Delhi, rendered in the case of M/s Sharp Business System v. CIT (supra), wherein, on the issue of allowability of depreciation on non-compete fees the Hon’ble High Court has ruled against the assessee. In this background the sole question that arises for determination is whether action of learned CIT(A) is justified in passing the impugned order following the judgment of the Hon’ble Jurisdictional High Court against which an appeal is pending adjudication before the Hon’ble Supreme Court. The issue in narrow compass is that learned CIT(Appeals) had allowed the claim of depreciation on non-compete fee. Thereafter, by invoking the provisions of section 154 on the basis of the ratio of decision laid down by the Hon’ble Jurisdictional High Court of Delhi in the case of M/s Sharp Business System v. CIT (supra), rectified his order and thereby disallowed the depreciation claimed on non-compete fees. For the sake of clarity the relevant contents of the order dated 24.09.2020 of learned CIT(Appeals) are reproduced as under:
“7. Against the show cause notice issued, the appellant has made the following submissions:-
(i) That the order of Hon’ble Delhi High Court in the case of M/s Sharp Business System vs. CIT was not applicable to the appellant’s case;
(ii) The appellant has brought on record, the decision of Hon’ble Karnataka High Court in the of M/s Ingersoll Rand International India Ltd., wherein the claim of depreciation on non-compete fees have been allowed;
(iii) Further, the appellant has also contended that the same is not mistake apparent from record, as the issue involved is debatable in nature.
8. The submissions of the appellant has been considered. However, in view of judicial enunciation as enumerated hereinabove, it is held as the ratio laid down by the Hon’ble Jurisdictional High Court has not been followed the same is treated as mistake apparent from record. Accordingly, the AO is directed to modify the order u/s 250 of the Act dated 20.01.2020 decided vide appeal No. 10126/1819. The decision regarding treating the non-compete fees as a capital asset was correct. But, allowing claim of depreciation thereon, was not in consonance with the decision of the Hon’ble Delhi High Court in the case of M/s Sharp Business System vs. CIT.”
8. The assessee has placed reliance on the judgment of the Hon’ble Supreme Court in the case of T. S. Balaram, ITO v Volkart Bros (1971) 82 ITR 40 (SC), wherein the Hon’ble Supreme Court has held that “a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions”.
9. Further reliance is placed upon the judgment of the Hon’ble Calcutta High Court in the case of CIT v. Orient Paper Industries Ltd. [(1994) 208 ITR 158 (Cal.), wherein the Hon’ble Court after following its earlier decision in the case of V.R. Sonti v. CIT concluded that, “if there is a divergence of judicial opinion on a question of law or two conceivable views are possible on it, proceedings for rectification under section 154 or under section 254(2) of the Income-tax Act, 1961 cannot be taken at all.
10. Further, the Hon’ble Punjab & Haryana High Court in the case of CIT v. Rajesh Talkies in Income-tax Reference nos. 64 & 65 of 1981 held that issue being debatable on which different opinion opinions have been expressed, therefore, the error pointed out in the order of the Income-tax Officer cannot be said to be one apparent from the record and, therefore, the same could not be rectified in a petition filed under section 154 of the Act.
11. The Hon’ble Madhya Pradesh High Court in the case of Sagar Co-operative Central Bank Ltd. v. CIT (misc. Civil Case no. 237 of 1984) has held as under:
“15. It would bear repetition to say that in the instant case, on the date when the Tribunal had passed the appellate order, this court’s decision was not there. In the second place, the decision of this court was and is already pending before the Supreme Court to be tested. Therefore, it cannot be said that the point is not debatable. It will, therefore, be seen that it involves a long-drawn process of reasoning to establish that there was an error apparent in the Tribunal’s appellate order for the assessment year 1974-75. In the result, therefore, the question referred to this court must be answered against the Revenue and in favour of the assessee as the Tribunal was not legally correct in holding that there was a mistake apparent from the record. In the circumstances of the case, we make no order as to costs of this reference.”
12. In the light of the above judicial pronouncements it is well settled that if the issue is debatable in that event the provisions of section 154 of the Act cannot be invoked. In the case in hand, primary issue related to allowance of depreciation on non-compete fee is pending consideration before the Hon’ble Supreme Court. Further, the Hon’ble Jurisdictional High Court has also admitted the issue whether powers u/s 154 can be exercised when the issue is debatable in the assessee’s own case for earlier assessment year. Under these circumstances and looking to the totality of facts when the Hon’ble Jurisdictional High Court has admitted the identical question in assessee’s own case we deem it proper for the judicial discipline and propriety to set aside the impugned order and restore the issue to the file of learned CIT(Appeals), who would decide it after the outcome of ITA no. 191/2024 in assessee’s own case for the assessment year 2012-13and pass order accordingly.
13. Appeal of the assessee stands allowed for statistical purposes.
Order pronounced in open court on 24th September, 2024.
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