Herbalife International India Pvt. Ltd. Vs CIT (Karnataka High Court)
Karnataka HC upholds revision under section 263 of Income Tax Act, 1961 for erroneous allowance of 100% depreciation on leasehold 1improvements
Assessee filed a return for AY 2008–09 declaring a revised loss of Rs 3.67 crore. It claimed 100% depreciation on leasehold improvements (Rs2.28 crore) made to its premises. These improvements included interior works, signage, & partitions claimed to be temporary in nature.AO accepted the depreciation claim without detailed discussion. A subsequent Sec 154 rectification notice was dropped after the assessee’s clarification.
CIT initiated revisionary proceedings u/s 263, arguing that AO did not examine the legitimacy of 100% depreciation claim & that the correct depreciation rate for such improvements should have been 10%. Assessee argued the issue was already examined, referencing past favorable rulings in its own case & disclosures in its financials & audit report.
ITAT dismissed Assessee’s appeal, stating that there was no evidence that the AO applied his mind to this depreciation issue & that the order was therefore erroneous & prejudicial to the interest of Revenue.
Karnataka High Court upheld the ITAT & CIT’s decision. The Court emphasised:
- No inquiry was made by the AO on the issue.
- The mere disclosure in the audit report/financials does not imply the AO formed a conscious view.
- The assessee’s own representative admitted during Section 263 proceedings that no inquiry was conducted.
- Reliance on past ITAT orders was found irrelevant as leasehold improvements differ by year & were not examined for AY 2008–09.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
