ITAT Chandigarh Quashes Section 263 Revision Over Trademark Depreciation Claim

Kitty Industries Private Limited Vs PCIT (ITAT Chandigarh)

Section 263 Is Not a Licence for a Second Investigation: Trademark Depreciation Allowed After AO’s Enquiry Cannot Be Reopened on Mere Suspicion

The Chandigarh Bench of the ITAT has quashed revisionary proceedings u/s 263 concerning depreciation claimed on the acquisition of a trademark for ₹50.37 crore. The Tribunal held that once the AO had raised queries, examined the relevant documents and adopted a legally possible view, the assessment could not be branded erroneous merely because the Pr. CIT believed that some further or differently worded enquiries should have been conducted.

The power u/s 263 cannot be used for a fishing or roving enquiry, nor can the Pr. CIT simply remit an issue to the AO without himself demonstrating how the assessment order is erroneous and prejudicial to the Revenue.

₹50.37 Crore Trademark Acquired From HUF

Kitty Industries Private Limited was engaged in manufacturing bread & bakery products. It filed its return declaring income of ₹24.74 crore for AY 2022-23. The case was selected for complete scrutiny and multiple notices u/s 142(1) were issued. After considering the replies, the AO accepted the returned income in an assessment framed u/s 143(3) read with section 144B.

The Pr. CIT initially raised an issue concerning profit on the sale of mutual funds but dropped it after examining the assessee’s reply. He thereafter noticed that the assessee had acquired the “Kitty” trademark from Ramesh Mago HUF for ₹50.37 crore, capitalised it as an intangible asset and claimed depreciation of ₹6.29 crore, being 12.5% for half a year.

According to the Pr. CIT, the AO had not independently examined the trademark’s valuation, commercial rationale, prior ownership or the justification for purchasing it from a related party. The assessee had used the trademark earlier without paying royalty, although the HUF was its registered owner. This allegedly raised suspicion that the asset value had been inflated to generate an excessive depreciation claim.

Acquisition Followed a Change in Management

The assessee explained that its ownership had changed following its acquisition by Reddy Roti India Ltd. (“RRIL”). A share purchase agreement was executed on 16-09-2021, and the trademark was assigned to the assessee on 27-10-2021.

The new management considered ownership of the core brand essential for the company’s business continuity and long-term commercial security. It therefore decided to acquire the trademark instead of continuing under a licensing arrangement.

A valuation report dated 23-09-2021 was obtained from Grant Thornton Bharat LLP before the actual acquisition. The fair value of the trademark was determined at ₹450.70 million. The trademark was acquired for the same value under the deed of assignment.

The assessee contended that the AO had called for details of additions to fixed assets and had been furnished the audited financial statements, notes to accounts, depreciation chart, tax audit report, purchase invoice and computation of income. Payment was made through banking channels. Therefore, the AO had taken a plausible view after enquiry.

AO Had Conducted Enquiry & Examined Primary Documents

The ITAT examined the assessment record and found that the AO had issued several notices seeking details of fixed assets, investments, expenses, loans & supporting bills. In response, the assessee furnished substantial details, including particulars of the addition to fixed assets and the GST invoice evidencing acquisition of the trademark.

The audited financial statements specifically disclosed the acquisition, capitalisation, change in ownership and related-party character of the transaction. Thus, the AO had primary material concerning the transaction and accepted the depreciation claim after considering the assessee’s replies.

The Tribunal also observed that there is no universal statutory requirement that the acquisition of every fixed asset must necessarily be supported by a valuation report. The invoice, financial disclosures and fixed-asset schedule could reasonably enable the AO to form a view regarding genuineness.

The transaction was supported by a valuation conducted before acquisition and the consideration corresponded with the value determined. The commercial decision to purchase the trademark after the takeover was a management decision which the Department could not substitute with its own business wisdom.

Lack of Enquiry Is Different From Inadequate Enquiry

Relying on Malabar Industrial Co. Ltd. v. CIT [243 ITR 83 (SC)], CIT v. Max India Ltd. [295 ITR 282 (SC)] and CIT v. Sunbeam Auto Ltd. [332 ITR 167 (Delhi)], the Tribunal reiterated that section 263 requires both conditions to coexist:

1. The assessment order must be erroneous; and

2. It must be prejudicial to the interests of the Revenue.

A clear distinction exists between lack of enquiry and inadequate enquiry. Where no enquiry is conducted, revision may be permissible. But where the AO has enquired into the issue and adopted a possible view, the Pr. CIT cannot invoke section 263 merely because he considers the enquiry insufficient or would have investigated the matter differently.

The absence of an elaborate discussion in the assessment order does not establish non-application of mind when the assessment record contains the AO’s queries and the assessee’s replies.

Pr. CIT Cannot Remand an Issue Based Only on Doubt

The ITAT found that the Pr. CIT had not recorded a categorical finding that the valuation was false, the consideration was excessive or the depreciation was legally inadmissible. He merely directed the AO to undertake further verification and obtain an independent valuation.

Following ITO v. DG Housing Projects Ltd. [343 ITR 329 (Delhi)], the Tribunal held that where the Commissioner doubts a valuation, he must conduct the necessary enquiry and demonstrate the error himself. He cannot remit the matter to the AO merely to determine whether the original assessment was erroneous.

Explanation 2(a) to section 263 does not confer an unfettered power to revise every assessment in which further enquiry might conceivably have been made.

The section 263 order was therefore quashed and the original assessment accepting the depreciation claim was restored.

Author’s Comments

The decision is important because it prevents section 263 from becoming a routine “second innings” for assessment. Suspicion may justify scrutiny, but it cannot replace a finding of error.

The strength of the assessee’s case lay in its contemporaneous record: pre-acquisition valuation, assignment deed, banking-channel payment, audited disclosures and a commercial explanation linked to the takeover. Had these materials been absent, the outcome could have been different.

The legal principle is clear: the Pr. CIT may correct an erroneous view, but cannot revise merely because the AO’s enquiry did not travel as far as he would have preferred.

Cases Discussed

• Malabar Industrial Co. Ltd. v. CIT — [243 ITR 83 (SC)]
• CIT v. Max India Ltd. — [295 ITR 282 (SC)]
• CIT v. Sunbeam Auto Ltd. — [332 ITR 167 (Delhi)]
• ITO v. DG Housing Projects Ltd. — [343 ITR 329 (Delhi)]
• S.A. Builders Ltd. v. CIT — [288 ITR 1 (SC)]
• V-Con Integrated Solutions Pvt. Ltd. — [173 Taxmann.com 774]
• Prabhu Poly Pipes Ltd. — [176 Taxmann.com 1005]
• McDowell & Co. Ltd. v. CTO — (1985) 154 ITR 148
• Vedanta Ltd. v. CIT — [124 Taxmann.com 435]
• Gee Vee Enterprises v. Addl. CIT — [99 ITR 375 (Delhi)]
• Daniel Merchants Private Ltd. v. ITO — SC23976/2017

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, CHANDIGARH

1. By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Ludhiana-1 (Pr. CIT) for the Assessment Year (AY) 2022-23 vide impugned order dated 25-03-2026 proposing revision of an assessment as framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s. 144B of the Act on 29-03-2024 accepting returned income of Rs.24.74 Crores as filed by the assessee.

2. The Ld. AR advanced arguments supporting the assessment order and made out a case of one of the possible views as taken by Ld. AO during the course of regular assessment proceedings. The Ld. AR contended that sufficient explanations and documents were already furnished by the assessee during the course of regular assessment proceedings itself. It has further been contended that the assessment was framed with due application of mind and therefore, the revision was unjustified. Reference has been made to various judicial decisions, the copies of which have been placed on record. The Ld. CIT-DR, on the other hand, advanced arguments supporting the impugned revisionary order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.

3. From the case records, it emerges that the assessee being resident corporate entity is stated to be engaged in manufacturing of Bread and Bakery products. The assessee filed return of income on 01.11.2022 at Rs.24.74 Crores. The case was subjected to complete scrutiny and the issues as identified therein was non-compliance of Accounting Standards Rules, 2015 and issue of deemed income u/s 41. During the course of assessment proceedings, multiple notices u/s 142(1) were issued by Ld. AO on 02.06.2023, 08.08.2023 and 02.01.2024 calling for various details from the assessee. A reminder letter was also issued on 17.01.2024 and final show-cause notice was issued on 18.03.2024. These notices were duly been responded to by the assessee vide its various replies. Considering these replies and submissions, the returned income was finally accepted by Ld. AO without making any addition in the hands of the assessee.

4. Subsequently, Ld. Pr. CIT, upon perusal of case records, show-caused the assessee on 24.12.2025 alleging that profit on sale of mutual funds was not reflected as income. Considering the assessee’s detailed reply, the said issue was finally dropped. Upon further examination of records, it was observed that the assessee capitalized trademark for Rs.50.37 Crores and claimed depreciation of Rs.6.29 Crores considering the same to be an intangible asset. This trademark was acquired through an assignment from Ramesh Mago HUF. It was alleged that no independent verification was done regarding the valuation of trademark and no valuation report substantiating the fair market value (FMV) of trademark was called for or examined during the assessment proceedings. Further, no examination was conducted regarding commercial rationale of acquiring the trademark from a related party at such substantial value. The assessee company was continuously using the said trademark / brand name even prior to its acquisition. The brand value associated with the trademark had largely been built through business operations, marketing efforts and goodwill of the assessee company itself whereas HUF entity was merely the registered owner of the trademark. Despite such continuous usage by the assessee company without payment of royalty or license fees, the trademark was subsequently acquired from the HUF for a substantial consideration. This aspect was not examined by Ld. AO during the course of assessment proceedings. Accordingly, the assessee was against show-caused on 12.02.2026. A detailed reply was again filed on behalf of the assessee on 03.03.2026 refuting the aforesaid allegation of Ld. Pr. CIT and supporting the case of the assessee. Another notice was issued to the assessee on 12.03.2026 which was likewise replied to by the assessee on 19.03.2026.

5. In its reply, the assessee stated that the case of the assessee was subjected to complete scrutiny wherein Ld. AO raised specific queries regarding addition to fixed assets and computation of income during assessment proceedings. The assessee furnished details of additions to fixed assets including the acquisition of trademark, relevant invoice and due enquiry was conducted by Ld. AO. The payment of purchase of trademark was made through banking channels. The Ld. AO had with him all the primary documents evidencing the acquisition of the trademark including audited financial statements, notes to the accounts, depreciation chart, Tax Audit Report detailing the acquisition of trademark and computation of income summarizing total depreciation as claimed by the assessee. The Ld. AO duly examined the same and after being satisfied with the bona-fide nature of the transaction and explanation furnished, accepted the claim of depreciation on trademark.

6. It was further stated that there was no requirement in law that the valuation of a fixed asset must be supported by a valuation report. The purchase invoice and the relevant disclosures made in the financial statements evidencing the purchase of fixed assets and the claim of depreciation in the fixed assets schedule was reasonably sufficient enough for the Ld. AO for form a view on the genuineness of the claim. The Ld. AO had taken a plausible view after raising specific queries, after making sufficient enquiries and after analyzing the response as well as documents on records. The assessee attached copy of deed of assignment of trademark between the assessee and the seller along with copy of valuation report dated 23.09.2021 issued by M/s Grant Thorton Bharat LLP. The said report was obtained owing to the event of acquisition of the assessee company by M/s Reddy Roti India Ltd. (RRIL). In this regard, a share purchase agreement was executed between the assessee, RRIL and promoters on 16.09.2021 and deed of assignment of subject trademark was executed on 27.10.2021. The transaction of purchase of trademark was purely market governed transaction necessitated by the business circumstances and undertaken at fair value as negotiated between the parties. The said acquisition of trademark from HUF entity was at Arm’s Length. The cost of the trademark was capitalized and duly evidenced by the invoice and supporting documents. The depreciation on the same was claimed at 12.5% for half year as prescribed u/s 32. Therefore, the view taken by Ld. AO was a correct view. It was further contended that the purchase of the trademark was a commercial decision taken by the management after acquisition of the company by RRIL. The department could not question business decision of the assessee as per the decision of S.A. Builders Ltd vs. CIT (2007) 288 ITR 1 (SC). There was a change in the ownership of the company during this year and the assessee company came under the control and ownership of RRIL. The new management took a business decision in its wisdom that acquiring core brand name / trademark by the company would be vital to longevity and safety of the business and therefore, they decided to purchase the trademark instead of entering into a licensing arrangement. The question raised under the notice was about viability and sanctity of business decision made by the company and its management which was not permitted. Reference was made to the decision of Hon’ble Punjab & Haryana High Court in the case of M/s V-Con integrated Solutions Pvt. Ltd. (173 Taxmann.com 773) to assail the proposed revision of the order. In Reply dated 19.03.2026, the assessee supplied further clarifications and explanations assailing the revision of the order.

7. The Ld. Pr. CIT observed that the primary contention of the assessee was that the case was selected for complete scrutiny and Ld. AO had raised specific queries regarding fixed assets and depreciation. The assessee furnished various details including fixed asset schedules, invoices, and financial statements etc. Further, there was no requirement of valuation report and the purchase of trademark was the business decision of the management which could not be questioned. Although general queries were raised by Ld. AO with respect to fixed assets but no specific inquiry was raised on the valuation of the trademark having substantial value. There was no material on record to indicate that Ld. AO had examined the basis of such valuation, the method adopted for determining the fair market value, or the justification for such a significant capitalization of an intangible asset. The assessment order was completely silent on the ownership and economic rights associated with the trademark prior to its acquisition, which clearly establishes that the claim was accepted without due verification / application of mind. As per Explanation 2(a) to Section 263 of Income Tax Act, an order passed without making enquiries or verification which should have been made, shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue.

8. Reference was made to the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (243 TR 83) and the decision in Daniel Merchants Private Ltd vs ITO (SC23976/2017). The assessee furnished valuation report during the course of proceedings u/s 263 and attempted to justify the commercial rationale behind the purchase of the trademark. However, these was failure on the part of Ld. AO to make requisite enquiries which renders the assessment order erroneous and prejudicial to the interest of the revenue. In the case of Vedanta Ltd. vs. CIT (124 Taxmann.com 435), Hon’ble High Court of Bombay held that where assessment was completed without proper inquiries, Commissioner was competent to invoke revisional jurisdiction and direct Assessing Officer for fresh assessment. The role of Ld. AO was an investigator and also that of an adjudicator. If Ld. AO as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it could be corrected by exercise of revisionary powers. As an investigator, it is incumbent upon Ld. AO to investigate the facts that were required to be examined and verified to compute the taxable income. The failure to do so would render order to be amenable to revision u/s 263. The Hon’ble Delhi High Court in the case of Gee Vee Enterprises v Addl. CIT (99 ITR 375 (Delhi) held that the commissioner could regard the order as erroneous since Ld. AO should have made further enquiries. While it is true that the Act may not expressly mandate a valuation report in every case, when an intangible asset of such substantial value was acquired, it becomes incumbent upon Ld. AO to examine the basis of valuation and ascertain whether the consideration paid reflects the fair market value of the asset or not. In the present case, the valuation report was not furnished before Ld. AO during the course of assessment proceedings. The same was produced only during the present proceedings. Therefore, Ld. AO had no occasion to verify the correctness of such valuation. The production of new evidence at this stage further establishes that proper verification was not carried out during the assessment proceedings. The valuation report now furnished could not cure the defect in the original assessment order. The correctness of the assessment order is to be examined on the basis of material available before Ld. AO at the time of passing the order. Subsequent submissions cannot validate an order which was passed without proper inquiry. The contention of the assessee that the department could not question the commercial rationale of the transaction merely because it involves a related party is not tenable in law, particularly in the facts of the present case. While it is true that business decisions are generally left to the management, this principle does not operate to shield transactions from scrutiny under the Income Tax Act, 1961 where such transactions may have a direct bearing on the computation of taxable income. The trademark in question was acquired from Ramesh Kumar HUF, who was a related party just prior to purchase of trademark and it was an undisputed fact that the same trademark was used without any royalty payment prior to the purchase. The fact that a related party has become a previously related party has come to knowledge during proceedings u/s 263. The Ld. AO was completely oblivious of fact that ownership of company had changed hands during the year. This fact was quite material to whole transaction of purchase of trademark. The department was entitled and obligated to examine whether the purchase was undertaken at a fair value, whether the consideration paid was genuine, and whether the transaction was structured to unduly claim excessive depreciation and reduce taxable income. Reliance on S.A. Builders Ltd. (supra) does not absolve the assessee from providing a clear and credible explanation for the timing, consideration, and necessity of the acquisition. The Hon’ble Supreme Court in McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 held that transactions which are colourable or structured in a manner to avoid tax are liable to be scrutinized irrespective of the commercial convenience claimed by the assessee. Therefore, the assertion that the AO could not question the timing or structure of the purchase ignores the statutory duty of the AO to examine the genuineness, commercial substance, and revenue implications of such high magnitude transactions. The whole sequence of change of ownership and purchase of trademark suggests structuring. The same creates suspicion that the transaction was designed not commercially driven. The lack of any valuation justification or explanation for the purchase of a previously used trademark clearly demonstrates that the transaction warranted detailed scrutiny, which was not undertaken, rendering the assessment order erroneous and prejudicial to the interest of the revenue. The contention that the question regarding prior use of the trademark without payment of royalty was outside the scope of assessment for the year and therefore, could not be examined u/s 263, was not legally sustainable. The Sec.263 empowers the revisionary authority to revise any assessment order if it is found to be erroneous and prejudicial to the interest of the revenue, and this includes examination of transactions that have a direct impact on the computation of income for the year under consideration, even if they arise from past arrangements or related party dealings. In case of no historical royalty or licensing behavior, it could be inferred that the brand was never treated as a separate monetizable asset. The issue of prior use without royalty directly bears upon the genuineness and fair valuation of the trademark acquisition. A sudden high valuation now was inconsistent and artificial one. It is a settled principle that where a transaction involves a party which was related to assessee just before acquisition and assessee was a family-controlled entity and control was apparently held by Karta of same entity from whom trademark was purchased, the AO was duty-bound to examine whether the arrangement was genuine, whether the consideration was reasonable, and whether the claimed depreciation was correctly computed. The fact that no royalty expenditure was booked does not preclude scrutiny; rather, it raises questions about the commercial substance and timing of the acquisition, which are essential to ensure that the claim is not colourable or structured to unduly reduce taxable income. Further, the explanation regarding acquisition post-takeover by RRIL does not negate the need for inquiry, as the AO was required to satisfy himself that the consideration paid represents fair market value and that the transaction was not a mechanism to inflate the asset value or depreciation claim. Therefore, the assessee’s assertion was unfounded. The assessment order does not indicate that Ld. AO had examined the fair market value of the trademark. Merely producing financial statements, invoices, and notes to accounts could not substitute for a conscious inquiry into the genuineness and correctness of the transaction. The AO did not seek an independent valuation report nor did he examine whether the purchase was structured to unduly inflate depreciation. Finally, the assessment order was termed as erroneous and prejudicial to the interest of revenue. The case laws as referred to by the assessee were held to be distinguishable. It was further observed that one of the reasons for scrutiny was that sale consideration of property in ITR was less than sale consideration as reported in Form 26QB which was not verified by Ld. AO. There was no such discussion in the assessment order demonstrating the Ld. AO had applied his mind to this issue.

9. Finally, the assessment order was held to be erroneous and prejudicial to the interests of revenue. It was alleged that Ld. AO failed to examine or verify material aspects that directly affect the correctness of the depreciation claimed on the trademark, the actual cost of acquisition, and the reported income. The Ld. AO was directed to conduct proper enquiry and verification on all these aspects including independent valuation of the trademark through a registered valuer, genuineness and commercial justification of the transaction, ownership rights and economic benefit of the trademark prior to acquisition, allowability of depreciation under the provisions of the Act, Security deposits payment, its treatment and adjustments in books, examine discrepancies in sale consideration and supporting documents to ensure correct computation of income. Aggrieved as aforesaid, the assessee is in further appeal before us.

Our findings and Adjudication

10. From the enumerated facts, it emerges that the case of the assessee was subjected to complete scrutiny wherein twin issues were identified viz. non-compliance of Accounting Standards, 2015 and issue of deemed income u/s 41. During the course of assessment proceedings, multiple notices u/s 142(1) were issued by Ld. AO on 02.06.2023, 08.08.2023 and 02.01.2024 calling for various details from the assessee. A reminder letter was also issued on 17.01.2024 and final show-cause notice was issued on 18.03.2024. These notices were duly been responded to by the assessee vide its various replies. In detailed notice dated 08.08.2023, the assessee was required to furnish various explanations and documents which include its computation of income, details of unsecured loans, sundry creditors, investments, details of additions to fixed assets along with copy of relevant bills, ledger of various expenses & vouchers. The assessee, vide its reply dated 30.12.2023, furnished substantial details as required by Ld.AO. In reply dated 15.01.2024, the details of additions to fixed assets along with copies of major bills were also furnished vide Page Nos. 1 to 38. The addition to trademark was shown at Rs.50.37 Crores for which the assessee furnished GST Bill No.1 showing procurement of trademark from M/s Ramesh Mago HUF. The valuation of trademark was done as per the report issued by M/s Grant Thorton during September, 2021. This report was obtained prior to actual acquisition of the trademark. The report clearly takes note of the fact that Ramesh Mago HUF was the exclusive owner of trademark kitty. The owner and the assessee company entered into an agreement dated 14.09.2017 to license the trademark to the company for selling its products on a royalty-free basis against security deposit of Rs.425 million. The fair value of the trademark, in the report, was determined at Rs.450.70 million. The said trademark has been acquired by the assessee vide deed of assignment dated 27.10.2021 against consideration of Rs.450.70 million, as valued by the buyer. The details of trademark as acquired under the agreement were specified in Schedule-1 of the deed. Apparently, Ld. AO was satisfied with the aforesaid explanation of the assessee and chose not to proceed in the matter any further. In notice u/s 142(1) dated 02.01.2024, the assessee was required to show compliance of Indian Accounting Standards along with details of expenses and loans etc. The issue i.e., sale consideration as reported by the assessee in ITR was less than amount reported in Form 26QB, was also confronted to the assessee. The replies to these queries stood furnished by the assessee vide its reply dated 20.01.2024. Considering all such replies, the returned income of the assessee stood accepted by Ld. AO without drawing any adverse inference. Under these circumstances, it could be well said that the issues as identified during complete scrutiny were duly being enquired / verified by Ld. AO after examination of complete records including audited financial statements of the assessee and after having satisfied with assessee’s detailed replies, the claim of the assessee stood accepted by Ld. AO.

11. The sole issue that has been flagged by Ld. Pr. CIT is the issue of purchase of trademark for Rs.50.37 Crores and depreciation of Rs.6.29 Crores as claimed thereon. The Ld. Pr. CIT has questioned the valuation of trademark, commercial rationale for the purchase and acquisition of trademark from the related party. All these queries stood adequately replied by the assessee during the course of revisionary proceedings and the assessee furnished valuation report and deed of assignment in support of its claim. It was stated that due enquiries were made by Ld. AO during the course of assessment proceedings itself. The valuation report was obtained by the assessee well before acquisition of the said trademark and the acquisition was in line with the valuation made by valuer. During the course of assessment proceedings, the assessee furnished its financial statements wherein adequate disclosure of acquisition of trademark were made at appropriate places and such transaction was duly been reflected in the financial statements in accordance with law. The acquisition and capitalization of the trademark, the change in ownership of the company and related party nature of the trademark transaction were all specifically disclosed in the audited financial statements. The Ld. AO raised specific query on addition to fixed assets which were duly been responded to by the assessee along with relevant bills etc. The AO had raised specific queries regarding addition to fixed assets and due enquiry was conducted by Ld. AO on the same. The payment of purchase of trademark was made through banking channels. The Ld. AO had with him all the primary documents evidencing the acquisition of the trademark including audited financial statements, notes to the accounts, depreciation chart, Tax Audit Report detailing the acquisition of trademark and computation of income summarizing total depreciation as claimed by the assessee. The Ld. AO duly examined the same and after being satisfied with the bona-fide nature of the transaction and explanation furnished, accepted the claim of depreciation on trademark. On these undisputed facts, the allegation of Ld. Pr. CIT, in our considered opinion, could not be said to be well founded. We also note that there is no requirement in law that the valuation of a fixed asset must be supported by a valuation report. The purchase invoice and the relevant disclosures made in the financial statements evidencing the purchase of fixed asset and the claim of depreciation in the fixed assets schedule was reasonably sufficient enough for the Ld. AO to form view on the genuineness of assessee’s claim. The Ld. AO had taken a plausible view after raising specific queries, with sufficient enquiries and after analyzing the response as well as documents on records. The assessee attached copy of deed of assignment along with copy of valuation report dated 23.09.2021 issued by Grant Thorton Bharat LLP. The said report was obtained owing to the event of acquisition of the assessee company by M/s Reddy Roti India Ltd. (RRIL). In this regard, a share purchases agreement was executed between the assessee, RRIL and promoters on 16.09.2021 and deed of assignment of subject trademark was executed on 27.10.2021. The transaction of purchases of trademark was purely market governed transaction necessitated by the business circumstances and undertaken at fair value as negotiated between the parties. The said acquisition of trademark from HUF entity was at Arm’s Length. The cost of the trademark was capitalized and duly evidenced by the invoice and supporting documents. The depreciation on the same was claimed at 12.5% for half year as prescribed u/s 32. We concur with all these submissions and would hold that the view taken by Ld. AO was correct view. We also concur that purchase of trademark was a commercial decision taken by the management which could not be questioned by the department as per settled legal position. On the given facts, it could be well concluded that Ld. AO made assessment with due application of mind after adequate enquiries. The view of Ld. AO could be said to be one of the possible views and the said view is not shown to be perverse, in any manner. The contentions raised by the assessee during revisionary proceedings remain uncontroverted before us. Therefore, the impugned revision of the order could not be held to be justified.

12. The short question before us is whether, on the facts of the present case, the assessment order could be regarded as erroneous and prejudicial to the interest of the revenue merely because, according to the Ld. Pr. CIT, the AO ought to have undertaken further verification of the acquisition of trademark. In our considered opinion, the revisionary power u/s 263 is a supervisory power and its exercise is conditioned upon satisfaction of the twin requirements that the assessment order is erroneous as well as prejudicial to the interest of the revenue. The Hon’ble Supreme Court in its landmark case of Malabar Industrial Co. Ltd. v. CIT [243 ITR 83 (SC)] has held that an incorrect assumption of facts or an incorrect application of law may render an order erroneous, but where the AO adopts one of the courses permissible in law or where two views are possible and the AO has taken one such view, the order cannot be branded as erroneous merely because the Commissioner does not agree with it. The same principle has been reiterated in CIT v. Max India Ltd. (295 ITR 282). Equally important is the distinction between lack of enquiry and inadequate enquiry. The Hon’ble Delhi High Court in CIT v. Sunbeam Auto Ltd. (332 ITR 167) held that where Ld. AO has conducted an enquiry, the mere fact that such enquiry was considered inadequate by the Commissioner would not, by itself, justify assumption of jurisdiction u/s 263. The Court specifically recognized that it is only in cases of lack of enquiry that such jurisdiction can ordinarily be exercised.

13. On the facts of the present case, we find that due enquiries were raised on addition to fixed assets which were duly been responded to by the assessee along with requisite documentary evidences in support of claim of depreciation. Under these circumstances, we are unable to accept the proposition that there was no enquiry by the AO. In our considered view, Ld. AO was fully satisfied with assessee’s explanation and chose not to make any further enquiries on the flagged issue. Once a plausible view has been taken with due application of mind, the assessment order could not be branded as erroneous and prejudicial to the interest of the revenue merely because revisionary authority opine that further enquiries should have been made.

14. It is also evident that Ld. Pr.CIT has not recorded a categorical finding, based upon any material brought on record by him, that the explanation or documents as furnished by the assessee during revisionary proceedings do not substantiate the claim of the assessee. The Ld. Pr. CIT has merely directed Ld. AO to undertake further verification. In our considered opinion, the revision u/s 263 could not be exercised merely to conduct fishing or roving enquiry. It must be demonstrated as to how the assessment order is erroneous which has caused prejudice to the revenue. Our aforesaid view is as per the ratio of Hon’ble Delhi High Court in the case of ITO vs. DG Housing Projects Ltd. (343 ITR 329). In this decision, it was held by Hon’ble Court that AO is both an investigator and an adjudicator. A distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the Sec. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. The CIT cannot direct reconsideration only when the order is erroneous. The Commissioner must after recording reasons hold that the order is erroneous. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous. The Commissioner must after recording reasons hold that the order is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated. The ratio of this decision squarely applies to the facts of present case before us.

In the present case, Ld. Pr. CIT has not established that the explanation furnished by the assessee regarding depreciation claim was factually incorrect or legally unsustainable. The fact that certain supporting documents were not found in the assessment folder cannot erase the enquiries actually conducted by Ld. AO. The assessment record contains the notices issued by the AO, the assessee’s responses and the reconciliation which specifically addressed the flagged issues. It could very well be said that the flagged issue was duly been questioned by Ld. AO and the issue was replied to the satisfaction of Ld. AO. Upon perusal of all these replies and documents, it could very well be said that whatever information was called for by Ld. AO, the same was duly been supplied by the assessee. The Ld. AO considered the replies of the assessee and after having been satisfied with aforesaid explanation as furnished by the assessee, he chose to accept the returned income of the assessee. It could thus be seen that Ld. AO had raised a specific query on the flagged issue and accepted the claim of the assessee with due application of mind. Therefore, it is a case of acceptance of one of the plausible views which was more on facts and the said view could not be said to be opposed to any law or statutory provisions. The Ld. AO, in our opinion, had taken one of the plausible views in the matter and therefore, Ld. Pr. CIT could not be said to be justified in substituting the view of Ld. AO with that of his own view. Simply because some further verification was required or simply because the verification was not done in a particular manner or some issues were not examined by Ld. AO which ought to have been examined, the same could not justify revision of the order unless it was shown that the view of Ld. AO was erroneous or opposed to any law or non-examination of any aspect was prejudicial to the interest of the revenue. We find that there is no such finding in the impugned revisionary order and therefore, the scope of assessment could not be enhanced by exercising the revisionary power u/s 263 unless the case of error as well as prejudice to revenue is made out by revisionary authority. The case law of Hon’ble Supreme Court in the case of V-con Integrated Solutions Pvt. Ltd. (173 Taxmann.com 774) as well as in the case of Prabhu Poly Pipes Ltd. (176 Taxmann.com 1005) duly supports the case of the assessee.

15. The Ld. Pr. CIT has referred to Explanation-2(a) to Sec.263. However, the said explanation could not be read in isolation so as to confer an unfettered power upon the revisionary authority to revise every assessment in which, in his subjective opinion, further enquiry could have been made. The statutory provision has to be read consistently with the settled principles governing Sec.263. Even after the insertion of Explanation 2, there remains a distinction between lack of enquiry and inadequacy of enquiry and that the revisionary authority must establish error in the assessment order which has prejudiced the revenue. The findings of Ld. Pr. CIT do not satisfy the jurisdictional requirements of Sec.263. There is no finding that the view as adopted by Ld. AO was unsustainable in law. Once the AO has examined the issue and adopted a view which is legally permissible, the same could not be displaced merely because another course of enquiry was possible.

16. Finally, on the totality of facts and circumstances, we would hold that the twin conditions as contemplated u/s 263 are not satisfied in the present case. The assessment order is neither shown to be erroneous nor prejudicial to the interest of the revenue in the manner as contemplated by law. We, accordingly, hold that Ld. Pr. CIT was not justified in invoking the revisional jurisdiction u/s 263 of the Act. The impugned order passed u/s 263 is, therefore, set aside and quashed and the assessment order originally passed by Ld. AO stand restored back.

17. The appeal stand allowed.

Order pronounced on 15/09/2026